Omak Maritime Ltd v Mamola Challenger Shipping Co [2010]
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Omak Maritime Ltd v Mamola Challenger Shipping Co [2010] EWHC 2026 (Comm), also simply referred to as The Mamola Challenger, examined the nature of damages in contract law, specifically addressing reliance loss as a species of expectation loss. The central principle established is that damages for reliance loss can only be claimed if the gross profits from the contract would have at least equaled the claimant's expenditure.
The facts of the case involved charterers repudiating a charterparty, despite the hire price being below the market rate. The ship owner elected to terminate the contract and chartered out the ship at a higher rate. The ship owner then claimed damages for the lost expenses incurred in preparation for the original charterparty, although these expenses had been entirely mitigated by the higher rate of the new charterparty.
The High Court, in its judgment delivered by Teare J, held that the claim for damages failed, and only nominal damages could be awarded. The judge emphasised that reliance losses are a subset of expectation losses and are not awarded on a different legal basis. The claimant can choose to frame the claim in damages on either the reliance or expectation basis, but recovery of expenditure is only allowed if gross profits exceed it. The burden of proof falls on the defendant to show that gross profits would not have equaled or exceeded the claimant's expenditure.
Teare J justified this approach by stating that if expenditure were recoverable without considering expectation loss, the defendant would effectively underwrite the claimant's decision to enter into the contract. Moreover, if the contract was a disadvantageous deal for the claimant, as expenses were likely to exceed gross profit, it would be illogical for the defendant to pay damages equal to the expenditure, as the breach did not cause that particular loss.
In the context of this specific case, where the ship owner's loss was entirely mitigated by the higher rate from the new charterparty, the court concluded that there was no additional loss to be compensated. Allowing compensation would have put the ship owner in a better position than if the contract had been performed.
The facts of the case involved charterers repudiating a charterparty, despite the hire price being below the market rate. The ship owner elected to terminate the contract and chartered out the ship at a higher rate. The ship owner then claimed damages for the lost expenses incurred in preparation for the original charterparty, although these expenses had been entirely mitigated by the higher rate of the new charterparty.
The High Court, in its judgment delivered by Teare J, held that the claim for damages failed, and only nominal damages could be awarded. The judge emphasised that reliance losses are a subset of expectation losses and are not awarded on a different legal basis. The claimant can choose to frame the claim in damages on either the reliance or expectation basis, but recovery of expenditure is only allowed if gross profits exceed it. The burden of proof falls on the defendant to show that gross profits would not have equaled or exceeded the claimant's expenditure.
Teare J justified this approach by stating that if expenditure were recoverable without considering expectation loss, the defendant would effectively underwrite the claimant's decision to enter into the contract. Moreover, if the contract was a disadvantageous deal for the claimant, as expenses were likely to exceed gross profit, it would be illogical for the defendant to pay damages equal to the expenditure, as the breach did not cause that particular loss.
In the context of this specific case, where the ship owner's loss was entirely mitigated by the higher rate from the new charterparty, the court concluded that there was no additional loss to be compensated. Allowing compensation would have put the ship owner in a better position than if the contract had been performed.
