High Court · Decided 17 April 2009

The "Asia Star"

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[2009] SGHC 91Case no. Adm in Rem 30/2004, RA 230/2008, 234/2008

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Grounds of decision

Official text from eLitigation

Judith Prakash J:
Introduction
[1] In November 2003, the plaintiff, Pacific Inter-Link Sdn Bhd, entered into a voyage charterparty with the defendant, the owner of the vessel Asia Star, by which it was agreed that the vessel would load a minimum cargo of 21,500mt of refined palm oil for carriage to and delivery at ports in the Middle East/Turkey/ Black Sea. On 19 January 2004, the vessel’s tanks were found to be unsuitable to receive the cargo and the plaintiff sent the defendant a message the same day holding the defendant responsible for its breach of the charterparty in failing to provide a vessel with suitable tanks. No cargo was ever loaded on to the vessel.
[2] On 13 February 2004, the plaintiff commenced this action against the defendant claiming damages for the breach of the charterparty. The defendant resisted the action vigorously and the question of liability duly went to trial. The trial judge found that the defendant was in breach of the contract. The defendant’s appeal against this decision was dismissed. The matter then went for assessment of damages. The plaintiff claimed the following as its loss and damage:
(a) Losses incurred on account of cancellation of sale contracts for the cargo by the plaintiff’s supplier PT Pacific Indomas(“Indomas”)
US$698,889.88
(b) Claim by the plaintiff’s buyer Agrima Ic Ve Dis Ticaret Pazarlama Ltd (“Agrima”) as a result of the plaintiff’s failure to deliver contracted cargo
US$823,800.00
(c) Penalty charges imposed by the plaintiff’s supplier PT Pacific Medan Industri (“Pamin”) for delay in loading
US$209,990.83
(d) Various charges such as interest and storage, reprocessing, transportation and heating charges imposed by another supplier, Pacific Oil and Fats Industries Sdn Bhd (“Pacoil”).
MYR558,467.31
Summary of relevant facts
[5] By various contracts made in November 2003, the plaintiff agreed to sell the following Malaysian and Indonesian edible oil products to Agrima, a trader in palm oil products in Turkey:
The total quantity to be delivered to Agrima was, therefore, 21,500mt. Under the contracts, the plaintiff had to ship the products between 15 December 2003 and 15 January 2004.
[6] Between October and December 2003, the plaintiff purchased a total of 24,500mt of palm oil and derivatives and crude coconut oil from three suppliers, Indomas, Pamin and Pacoil: 15,000mt were purchased from Indomas, 5,750mt were purchased from Pamin and 3,750mt were purchased from Pacoil. The plaintiff’s case was that it had decided to ship all the oil from Pamin and Pacoil and 12,000mt of the quantity purchased from Indomas to Agrima to fulfil its contracts with the latter. The plaintiff further contended that it had arranged for these cargoes to be carried on the Asia Star. The agreed loading period in the charterparty was between 27 December 2003 and 4 January 2004 with the vessel to present itself at the plaintiff’s nominated load ports in Indonesia/ Malaysia during that period. The plaintiff subsequently nominated Belawan port in Indonesia and Pasir Gudang in Malaysia with the vessel to call at Belawan first.
[7] On 1 December 2003, the plaintiff sent Indomas a shipping instruction telling it to load a total of 12,000mt of various palm oil products on board the Asia Star at Belawan. A similar instruction was given to Pamin on 12 December 2003 telling it to load 5,750mt of cargo on the vessel at the same port. On the same day, the plaintiff instructed Pacoil to load its cargo of 3,750mt on the Asia Star at Pasir Gudang. In each of these shipping instructions, the “laycan” of the vessel (ie the period during which it was expected to be at the relevant port for loading) was said to be between 27 December 2003 and 4 January 2004.
[8] The Asia Star did not arrive at Belawan during the originally agreed laycan. The defendant then asked for the time for commencement of loading to be extended to 15 January 2004 and the plaintiff agreed to this request.
[9] On 5 January 2004, Indomas informed the plaintiff that up till that date the Asia Star had not arrived for loading. It asked for the correct estimated date of arrival of the vessel or, alternatively, the name of a substitute vessel on which the cargo could be loaded. The plaintiff replied immediately to inform Indomas that Asia Star had been delayed and would be arriving at Belawan very soon. The plaintiff asked for an extension of the shipment date up to 15 January 2004. Indomas accepted this request but asked that the vessel be presented for loading by 15 January 2004 as it had storage constraints in respect of the cargo purchased by the plaintiff. On 16 January 2004, a further letter from Indomas stated that Asia Star had still not arrived and that it had no option but to put the plaintiff on notice that it was holding the plaintiff to be in default of contract. The plaintiff then asked for a further extension of another week. In response, Indomas agreed “as a special case” to grant the plaintiff up to 21 January 2004 to lift the cargo and said that if this deadline was not met, it would hold the plaintiff to be in default and would cancel all its contracts for sale of the 12,000mt of cargo. It should be noted that the price of palm oil products had increased since the contracts had been made with the plaintiff and that the market was still rising at this time.
[10] In relation to Pamin, upon receipt of the plaintiff’s shipping instruction, it informed the plaintiff that it would not be held responsible and would charge the plaintiff if the Asia Star arrived in January 2004 rather than in December 2003. When the vessel did not arrive by 5 January 2004, Pamin wrote a further letter to the plaintiff stating that it would be charging the plaintiff a penalty for the delay in shipment in accordance with the contract between them. The plaintiff asked Pamin to waive the penalty but Pamin did not agree to do so.
[12] There was also communication between the plaintiff and Agrima in relation to the delay in the arrival of the Asia Star. When it was clear that the vessel would not be able to load its cargo by the contractual shipment deadline of 15 January 2004, the plaintiff asked Agrima for an extension of the shipment deadline. It was granted an extension up to 21 January 2004.
[13] In the meantime, the plaintiff had been communicating with the defendant on the cargo that it intended to load onto the Asia Star. On 12 January 2004, it sent out a cargo nomination setting out the breakdown of the intended cargo and asked for the defendant’s confirmation as to whether the vessel could stow the cargo in accordance with this nomination. The master of the vessel responded by sending a revised stowage plan for the cargo nomination. Between 13 January 2004 and 19 January 2004, there were many e-mail exchanges because the plaintiff made changes to its cargo nominations and in response the vessel changed the loading and stowage plans. On 18 January 2004, the plaintiff advised the master of the Asia Star that its representative, one Mr Sharul, would board the vessel to discuss stowage plans.
[15] The plaintiff responded through its solicitors. The solicitors’ letter dated Monday, 19 January 2004, put the defendant on notice that the vessel was unseaworthy by reason of the defective tanks.
[16] On the evening of 20 January 2004, the defendant notified the plaintiff that during the previous 24 hours, the defendant had done what it thought it could to improve the tanks’ condition. It invited the plaintiff to reinspect the tanks to determine whether the same could be accepted. The defendant stated that if the plaintiff did not carry out the inspection before 8pm, it would take the necessary steps to prevent further delay and to protect its own interest. The plaintiff did not respond to this invitation and on 21 January 2004 at about noon, the defendant noted the plaintiff’s lack of response and formally notified the plaintiff that it was withdrawing the vessel and would sail her away from Belawan immediately.
[17] The plaintiff’s solicitors responded the same day. In their letter, they asserted that the defendant’s message of 19 January 2004 made it clear that the defendant had terminated the charterparty. Further, by failing to make the vessel seaworthy and cargoworthy, the defendant had breached the terms of the charterparty and this breach had been accepted by the plaintiff. The solicitors also said that the plaintiff was searching for an alternative vessel and once the claims had been compiled, would take the necessary proceedings to recover its loss.
[18] While all this was going on, the plaintiff had been searching for an alternative vessel. It first started looking when the Asia Star did not meet the original laycan but was unable to find a vessel available for spot charter. On 19 January 2004, Sheik Abdul Malik Mohamed Kassim (“Mr Malik”), the head of chartering operations in the plaintiff asked his shipbroker, Mr Sivananthan Munusamy (“Mr Sivananthan”), of a company called Panasia Marine (Tankers) Pte Ltd (“Panasia”), to look out for a vessel to charter on an urgent basis which could pick up the cargo intended for shipment on Asia Star. The first response to this request was the offer, the same day, of a vessel called Mount MacKinney. This vessel was, however, not acceptable because its estimated date of arrival for loading was 3 or 4 February 2004 which was too late for the intended cargo.
[19] On the night of 19 January 2004, Mr Sivananthan informed Mr Malik of another possible substitute vessel. This was the Puma which had a cargo carrying capacity of 40,000mt of cargo (almost double the carrying capacity of the Asia Star). The owners of the Puma indicated that it could start loading the cargo at Belawan by 27 or 28 January 2004 based on its estimated arrival date at Pasir Gudang of 26 or 27 January 2004. On 20 January 2004, the owners of the Puma proposed a freight rate of US$27.50 per metric tonne on the basis of one load port/one discharge port. There would be additional charges if a second load port and/or second discharge port were to be used. The demurrage quoted was US$17,000 per day.
[20] On the evening of 20 January 2004, the plaintiff made a counterproposal to the owners of the Puma. The main terms of the offer were as follows: the plaintiff would load a minimum cargo of 36,000mt, the laycan would be between 25 and 31 January 2004, the freight would be US$25.50 per metric tonne on the basis of one load/one discharge port and the plaintiff would pay further specified charges for additional load and discharge ports, and finally, the demurrage was to be US$14,000 per day. According to Mr Malik, the Puma would have been a commercially viable vessel for the plaintiff provided that the owner agreed to the rates for lay time, freight and demurrage proposed by him and the vessel was able to arrive at Belawan by 25 January 2004. The owners of the Puma did not find the counteroffer attractive, however, and they did not respond to it. On 21 January 2004, Panasia tried to find another alternative ship but was not successful.
[21] On 22 January 2004, Indomas cancelled all its sale contracts with the plaintiff on the basis that the plaintiff had not complied with the contractual shipment date. The plaintiff attempted to persuade Indomas to withdraw this cancellation and ship the cargo on the vessel Chembulk Barcelona which it had previously chartered to load cargo in early February. This request was refused. Indomas stated that it had space constraints and could not store the cargo for the plaintiff for an unspecified time. The plaintiff contended that it had suffered a loss of profit amounting to US$698,889.88 by reason of the cancellation of the Indomas contract. It computed its loss on the basis of the difference in contract prices between its purchase contracts with Indomas and its sale contracts with Agrima, after taking into account the expenses of shipping the cargo to Turkey and insuring it.
The judgment below
[24] The three arguments that the defendant mounted against the making of any award in the plaintiff’s favour were:
The Assistant Registrar considered the first two arguments. In the light of his finding on the mitigation issue, he did not find it necessary to move on to the third point.
[25] Dealing with the first argument, the Assistant Registrar examined whether the evidence presented by the defendant sufficiently proved its loss, on a balance of probabilities. The defendant had mounted a two-fold attack: first, that the plaintiff had not actually decided on 19 January 2004 to ship the cargo from the three suppliers to Agrima on the Asia Star and second, that the plaintiff had colluded with its suppliers and its buyer to present a sham case to the court. The Assistant Registrar rejected both those arguments. He accepted that the evidence, both documentary and oral, established on a balance of probabilities that by the time of the defendant’s breach, the plaintiff had made a firm decision to load the cargo from Indomas, Pacoil and Pamin on the Asia Star and use that vessel to deliver the cargo to Agrima in Turkey. He held that any loss occasioned by the defendant’s failure to load the cargo and deliver it to Agrima within the material time period flowed directly from the defendant’s breach of contract. As for the second argument, the Assistant Registrar rejected it on the basis that the allegation of fraud on the part of the plaintiff in presenting its claim had not been specifically pleaded. He also found the allegations that the witnesses had conspired to present a sham case to be entirely unmeritorious.
[26] In dealing with the second issue, that of mitigation, the Assistant Registrar noted that whilst a plaintiff who is suing for damages arising from a breach of contract has a duty to take reasonable steps to mitigate the loss arising from the breach, the standard of reasonableness is not a high one and the plaintiff was not expected to do anything other than in the ordinary course of business. In judging the reasonableness of the plaintiff’s conduct, the relevant circumstances to be considered are limited to those prevailing at the material time.
[27] The Assistant Registrar then considered the evidence relating to the efforts made by the plaintiff through Mr Malik to obtain another vessel after the Asia Star failed the inspection on 19 January 2004. He came to the conclusion that Mr Malik had confirmed in court that the freight rate was the only factor which prevented him from chartering the Puma as a substitute for Asia Star. He also noted that when the owners of the Puma did not respond to the plaintiff’s counteroffer, Mr Malik had given Mr Sivananthan instructions to find a new vessel which was able to carry 20,000mt to the East Mediterranean and 20,000mt to the Red Sea. Based on these facts, the Assistant Registrar found that the larger capacity of the Puma as compared to the Asia Star was not a major consideration for the plaintiff in deciding whether to charter it in place of the Asia Star. He considered that the plaintiff had simply tried to maximise the revenue which could be generated from chartering the Puma and that was why it did not immediately take her as a substitute vessel.
[28] The Assistant Registrar also took note of the fact that by 19 January 2004, the plaintiff was already in default of its obligations under the shipping instructions given to the suppliers and the purchase contracts with Agrima. Yet it had neither informed these parties of the rejection of the Asia Star nor told them that there was a possible substitute vessel available. In his view, this should have been done forthwith and been accompanied by a request for a further extension of time. The Assistant Registrar did not find Mr Malik’s explanation for failing to notify the counterparties of the situation to be a satisfactory one. Mr Malik had said that the reason for not informing the parties about the Puma was that the charter had not been confirmed and the plaintiff did not want to look stupid if the charter did not go through. At the same time, he thought that Mr Malik had taken contradictory views on whether there was flexibility between the parties at that time.
[29] The Assistant Registrar then drew the inference that the plaintiff had taken it for granted that it would get further time extensions from both Agrima and the suppliers. He found this position to be unreasonable in the circumstances. Repudiation of the contract by the counterparties was a clear and present danger in the circumstances prevailing at the time and prompt action should have been taken by the plaintiff to reassure the other parties. The Assistant Registrar stated:
The Assistant Registrar observed that the potential loss for cancellation of any, if not all of the contracts would have far outweighed the sum of US$302,000 since there was a rising market for palm oil products and the plaintiff would have been aware of this and the potentially ruinous damages it would have to pay if Agrima cancelled its contracts. He therefore found that a reasonable and prudent businessman in the plaintiff’s position would have chartered the Puma, subject to negotiations for extensions of time and then negotiated for these extensions on the basis of the availability of the Puma. He considered that if extensions of time had not been granted, the plaintiff could have released its “option” to charter the Puma at no cost to itself. The plaintiff should also have chartered the Puma at the rate of US$27.50 per metric tonne instead of insisting on a lower rate.
[30] The Assistant Registrar also found that the damages claimed in respect of Pacoil and Pamin would have been largely avoided by the charter of the Puma since there was no question that they would have granted extensions to the plaintiff. He rejected the plaintiff’s argument that the charter of the Puma would have made no difference and that Agrima and Indomas would have repudiated their contracts in any event. In his view, the evidence showed, on a balance of probabilities, that both Argima and Indomas would have accepted the substitution of the Puma for shipment of the cargo.
[31] In the judgment of the Assistant Registrar, all of the damages claimed by the plaintiff could have been avoided by it taking the reasonable and prudent steps of chartering the Puma on either 20 or 21 January 2004 and asking the suppliers and Agrima for extensions of time on that basis. The plaintiff had failed to mitigate its loss and was not entitled to the damages claimed. Instead, the proper measure of damages would be the total amount of freight that the plaintiff would have paid for the charter of the Puma less the amount of freight which it was originally bound to pay for the Asia Star. In his calculation, that figure was US$302,000. The Assistant Registrar also held that there was no evidence to establish that the plaintiff would easily have been able to secure additional goods to ship on the Puma to take up the excess space and therefore it would have had to pay dead freight in respect of 14,500mt of stowage space had it chartered the Puma.
The appeals
[32] Since neither party was happy with the conclusion that the Assistant Registrar had reached, the appeals were in essence a reopening of all the issues considered before him. Both parties filed substantial submissions and went through the evidence and the law in a great deal of detail. The defendant’s arguments were particularly prolix.
[33] The plaintiff put forward the following contentions:
[34] The defendant’s position was as follows:
Thus, the three main issues have to be considered all over again.
Did the plaintiff succeed, on a balance of probabilities, in establishing that the defendant’s breach had caused it loss?
[35] The defendant argued that the contemporaneous evidence showed that the plaintiff did not purchase the Indomas, Pamin and Pacoil products for resale to Agrima and that on 19 January 2004, it had yet to decide which cargoes to load on board the Asia Star. First of all, it noted that the plaintiff had not bought 21,500mt of palm oil products specifically for resale to Agrima. The plaintiff was in the business of forward trading in oil palm and derivatives and its witness, Ravi Kumar Nagar (“RKN”), the plaintiff’s international trading manager, had testified that the plaintiff did not buy such products with a specific buyer in mind. He had also admitted that even though the plaintiff may have nominated the cargo for a particular vessel, the plaintiff would not have decided at the time of nomination which purchase contract that cargo was intended to fulfil.
[36] In this case, the defendant said, the three shipping instructions issued to Indomas, Pamin and Pacoil for a total quantity of 21,500mt were not the only shipping instructions issued for Asia Star. RKN had agreed that the base cargo for the Asia Star was definitely more than that quantity and, therefore, the defendant argued there must have been other shipping instructions issued. It was noteworthy that during the period between 12 and 17 January 2004, the plaintiff notified the vessel of various cargo nominations which were significantly different in cargo type and quantities from the shipping instructions issued to Indomas, Pamin and Pacoil. For example, the 17 January 2004 cargo nomination reflected an extra 3,000mt of palm olein, an extra 2,000mt of palm stearin and an extra 100mt of coconut oil to be loaded at Belawan. This additional cargo could not have come from the Indomas or Pamin contracts. This showed that there must have been additional cargoes nominated for shipment on board the Asia Star and the shipping instructions for such additional cargoes would have been issued to the shippers at least 14 days prior to 15 December 2003 in accordance with the usual practice, as confirmed by RKN, that the vessel nomination must be sent to the shipper 14 days in advance of the vessel’s arrival and such nomination is never sent out at the last minute.
[37] The defendant also considered that the allegation that there were other cargoes nominated for the Asia Star was supported by evidence given by one Ms Cherie Thomas Toh, the manager of the Medan branch of Indomas, who stated that Indomas had purchased cargo from third party shippers for delivery to the plaintiff. According to the defendant’s analysis of this evidence, various consignments which Indomas had purchased were not intended to be loaded on the Asia Star and other shippers were supplying cargo to be put on that vessel but not pursuant to the Indomas sales contracts. The defendant concluded that because the base cargo nominated for the Asia Star was larger than its carrying capacity, not all the cargo that was nominated would in fact be loaded on board the Asia Star and there would have to be “substitution of vessels for the cargo”. Since a larger cargo base was nominated and RKN had confirmed that substitution was a common practice, the reality was, the defendant submitted, that the shipping instructions were not inviolable. It was a practice to earmark more cargo ahead of time as the suppliers required prior notification in order to get the cargo ready.
[38] Further, the evidence of Mr Malik and the plaintiff’s own correspondence with its shippers after the rejection of the Asia Star showed that the plaintiff could easily switch its cargo onto another vessel even after the shipping instructions had been issued for that vessel. This was demonstrated by the plaintiff’s offering between 23 and 26 January 2004 to put 21,000mt of the Asia Star cargo on to the Chembulk Barcelona which had a laycan of 30 January 2004. The Chembulk Barcelona had been chartered earlier and the plaintiff must have already issued shipping instructions for that vessel before 23 January 2004 and yet it was eventually able to put 9,500mt of the Asia Star cargo onto the Chembulk Barcelona.
[39] The defendant also argued that the evidence showed that the plaintiff always had flexibility with its shippers and buyers and was able to bring forward the date of shipments or postpone the date or cancel the shipments altogether depending on the situation.
[40] The defendant took issue with the Assistant Registrar’s finding that the evidence did not show that the plaintiff had decided affirmatively to deviate from the original cargo nomination made on 13 January 2004 and his further holding that the plaintiff’s “actions in exploring ways of maximising their business should not preclude them from claiming for loss of a pre-arranged transaction, which the defendant’s breach had unwound”. The Assistant Registrar found the plaintiff was at the relevant time “ready, willing and able to ship the cargo from the three suppliers to Agrima in satisfaction of [the plaintiff’s] obligations”.
[41] In the defendant’s submission, these findings glossed over clear contemporaneous evidence showing that the plaintiff had been changing its cargo nominations notwithstanding the shipping instructions. The defendant argued that even by the plaintiff’s own evidence, the cargo nominations set out the plaintiff’s contemporaneous decisions as to what cargo to load on board the vessel following its decision as to the intended destinations of the vessel. These cargo nominations were not mere explorations of the way to maximise the plaintiff’s business. The fact that the base cargo, which had been nominated for the Asia Star, was larger than that vessel’s carrying capacity meant that part of the cargo would not be shipped on the Asia Star but would have to be put on a substitute vessel. This must mean that the cargo under each shipping instruction had not been matched with any particular resale contract. At the time of the rejection of the Asia Star, the plaintiff had not decided whether all 21,500mt of the Indomas, Pamin and Pacoil contracts were to be shipped to Agrima on board that vessel. It had not made up its mind whether to do this or whether to send 5,000mt to Odessa and deliver only the balance to Turkey. In the result, according to the defendant, the plaintiff had not been able to establish any loss suffered by reason of the failure of the Asia Star to load.
[42] The plaintiff produced both documentary and oral evidence in support of its case that it had intended to ship 21,500mt of cargo on board the Asia Star for delivery to Turkey to satisfy its sale contracts with Agrima. Apart from the evidence of Mr Malik and RKN, oral evidence was also adduced from representatives of the plaintiff’s suppliers and Agrima.
[43] In my judgment, the Assistant Registrar’s findings in relation to shipment were supported by the evidence. The documentary evidence established the purchase contracts between the plaintiff and its suppliers and the sale contracts between it and Agrima. It was accepted by the plaintiff that at the time these purchase contracts were concluded, they were not intended specifically to fulfil any sale contracts made by the plaintiff. This was because the plaintiff is a leading trader in edible oils and buys a vast quantity of such oils every month which it later allocates to various purchasers depending on the flow of its trade and the availability of suitable vessels. The plaintiff’s evidence was that it was a forward trader and the defendant’s expert witness, one Mr Raj Kumar Shah, testified that forward trading is very common in the palm oil trade. Mr Shah also testified that there could be no generalisation of the length of the time period between a purchase and a resale undertaken by a forward trader. Thus, the fact that the plaintiff did not have any designated sub-purchaser in mind when it contracted with Indomas, Pacoil and Pamin was not an indication that the plaintiff subsequently had no firm intention of shipping this cargo on the Asia Star.
[44] The documentation also showed that in early December 2003, the plaintiff informed each of the relevant suppliers that it had nominated the Asia Star as the vessel on which its cargo was to be shipped. These shipping instructions indicated the amount of cargo purchased that had to be shipped and also the expected date of shipment. Thereafter, the shipping instructions remained unchanged right up to the rejection of the Asia Star on 19 January 2004. These shipping instructions were reflected by the cargo nominations made by the plaintiff to the vessel on 13 January 2004, superseding an earlier nomination made the previous day. Whilst the plaintiff did subsequently explore various cargo combinations with the vessel, it did not at any time instruct the suppliers that it had changed its mind about how much cargo was to be loaded on that vessel at Belawan and Pasir Gudang. Instead, when the vessel was delayed, the plaintiff made it a point to ask the suppliers for extensions of the loading date. It appears that the plaintiff wanted to assure itself that this base cargo would be available for loading on the Asia Star in due course even though it was exploring other options. By 18 January 2004, according to RKN, the plaintiff had made a firm decision not to effect any changes to the intended shipments. Whilst the defendant criticised the credibility of this evidence, I am satisfied that those criticisms were not justified. The person in the plaintiff’s organisation who was in charge of making the final decision as to what cargoes were to be shipped on the Asia Star was RKN and I accept as true his evidence that the plaintiff had by 19 January 2004 decided what quantities of each type of edible oil should be loaded and that he had deputed Mr Sharul to notify the master of this when he went on board the ship to supervise the loading.
[45] As for where the cargo was going, I agree too that the evidence showed that at the material time in January 2004, it was intended to fulfil the plaintiff’s contracts with Agrima. Under these contracts, shipment was to be effected between the second half of December 2003 and 15 January 2004. The original laycan of the Asia Star would have fallen within this period and the plaintiff decided in early December 2003 to ship the cargo intended for Agrima on that vessel. Even if the plaintiff had not originally intended the Asia Star to carry Agrima’s cargo, by 15 January 2004, it must have formed a firm intention to do so since it had not shipped that cargo by any other vessel and, more pertinently, had asked Agrima for an extension of the shipment date. It is also worth noting that the plaintiff had informed Agrima that Asia Star was to be the carrier and that Agrima had in turn forwarded the vessel’s name to its sub-purchasers who subsequently enquired as to the expected arrival date of the ship. Agrima had granted the extension but only up to 21 January 2004 and there was no other vessel at that time (on 18/19 January 2004) on which the plaintiff could have ensured that the cargo was loaded so as to meet the extended shipment deadline.
[46] As for the defendant’s submissions on the plaintiff’s flexibility negating the possibility of loss arising from its breach, I cannot accept these. I agree that the evidence did show that the plaintiff had a certain amount of flexibility in the way that it allocated cargo to various buyers and nominated vessels to carry cargo to various ports. This was due partly to the amount of cargo purchased by the plaintiff and the number of ships under charter to it at any time. This flexibility was, however, limited by the terms of the agreements between the plaintiff and its suppliers/buyers and between the plaintiff and the various shipowners with whom it had entered into charterparties. Where there were no terms entitling the plaintiff to unilaterally extend a shipment date, the plaintiff’s ability to be flexible was limited by the goodwill of the counterparties and their willingness to agree to changes. The plaintiff was not at liberty to unilaterally change contractual terms as it saw fit. Mr Malik, while he agreed in court that the plaintiff had the flexibility to bring shipment dates forward or to postpone them, did not assert that the flexibility was unlimited. It had to be a question of degree and subject to the agreement of the counterparties.
[47] In the present case, the plaintiff’s counterparties did demonstrate some degree of flexibility: Indomas agreed to extend the contractual shipment period by one week to 21 January 2004 and Agrima agreed to a similar delay in shipment. Additionally, Agrima agreed to postpone shipment of some of its cargo to the February vessel Chembulk Barcelona, and Pamin and Pacoil agreed to a delayed shipment of their cargo on that same vessel. In the event, Indomas was not prepared to agree to an extension to the shipment date so as to allow shipment on Chembulk Barcelona and it cancelled its contracts on 22 January 2004 and on the same day, sold off 10,500mt of the 12,000mt parcel so cancelled. Agrima cancelled part of the cargo, agreed to delayed shipment of another portion but insisted that it be compensated in respect of non-delivery of a third portion. It cannot be denied that a certain amount of flexibility was displayed by the suppliers and buyer but the degree of the same was not within the plaintiff’s control.
[48] The extensions that were given were, in contractual terms, indulgences rather than entitlements. The plaintiff could not rationally have expected that on every occasion on which it requested a supplier or a purchaser to give it an extension that the request would be granted. Mr Shah, the defendant’s witness, testified that the granting of time extensions is subjective and whether the extension is granted or not would depend on whether doing so would suit the supplier. The defendant as an experienced shipowner must have known that whilst there can be a certain amount of flexibility in business, such flexibility cannot be guaranteed and parties are always entitled to insist on the strict observance of their contractual rights. Its argument that the plaintiff possessed enough flexibility to entirely escape liability for non-shipment of cargo on board the Asia Star was against commercial sense, not to mention the facts of this case.
[49] In my judgment, the Assistant Registrar was entirely correct in his finding that on a balance of probabilities, the plaintiff had suffered loss by reason of the defendant’s breach of contract.
Mitigation
[50] The Assistant Registrar’s conclusion was that the plaintiff had failed to mitigate its loss when it did not avail itself of the opportunity of chartering the Puma to carry the cargo to Turkey. The plaintiff attacked this finding on two counts:
Had the duty to mitigate arisen?
[51] In relation to the first contention, the plaintiff argued that it was not under a duty to mitigate during the period from 20 January 2004 to 21 January 2004 because at that time the plaintiff had not accepted the defendant’s repudiation of the charter by failing or refusing to furnish a substitute vessel. Further, the plaintiff did not accept the defendant’s repudiation of the charter arising out of the defendant’s presenting the Asia Star in an unfit state until 21 January 2004. The Assistant Registrar had found that the defendant initially cancelled the charter on 19 January 2004 and had then relented and made further attempts to tender the vessel for loading before finally cancelling the contract on 21 January 2004. That being the case, the plaintiff submitted, the defendant finally cancelled the Asia Star contract at noon on 21 January 2004 when it sent the plaintiff an e-mail stating that up to that time it had not received any response or action from the charter in relation to its invitation to re-inspect the vessel’s tanks and therefore it had “to formally inform you per governed charterparty, we are now withdrawing the ship and shall sail her from Belawan with immediate effect”. This repudiation by the defendant was accepted by the plaintiff only on 21 January 2004 and the plaintiff’s duty to mitigate did not arise until after that acceptance.
[52] The issue of when the charterparty came to an end is a question of fact. It can only be decided by an examination of what happened at the material time. Since it was the defendant who was in breach of contract, what is important is to determine when it was that the plaintiff accepted that breach of contract. A summary of what occurred is set out in [14] to [17] above.
[53] The plaintiff learnt of the problem with the tanks of the Asia Star on 19 January 2004 and immediately rejected the ship and suggested to the defendant that it provide a substitute vessel. The defendant’s reaction, communicated on the evening of 19 January, was to state that it had no choice but to cancel the shipment and also that the further tank cleaning that it was conducting was not helping the coating of the tanks. It also made clear that it had no substitute vessel available. That reaction from the defendant was a clear notification to the plaintiff that at that moment, the defendant had no intention of performing the charterparty. The plaintiff as the innocent contracting party then had the choice of whether to continue to insist that the defendant perform its side of the bargain or to accept that the charter was ended and see what it could do to mitigate its loss arising from the breach.
[54] The plaintiff instructed its Malaysian solicitors to put the defendant on notice that the vessel was unseaworthy and not fit to receive the cargo. The letter went on to state:
[55] The defendant back-pedalled when it received that message. The next morning, it stated that it was thinking that it should first resolve the problem by working with the plaintiff and asked the plaintiff to present some constructive suggestions in order to solve the problem. It also asserted that it was doing what it could to remove the rusty dust from the tanks in order to present the vessel for the cargo. Later that day, the defendant invited the plaintiff to re-inspect the tanks but the plaintiff did not respond to that invitation. This lack of response resulted in the formal withdrawal by the defendant on 21 January 2004 at noon.
[56] On 21 January itself, the plaintiff’s lawyers wrote to the defendant in the following terms:
It would appear from the first paragraph of the letter that it was written (if not delivered) before the defendant gave notice that it was withdrawing the vessel.
[57] Having considered the circumstances and the correspondence, I have come to the conclusion that on the evening of 19 January 2004, the plaintiff had accepted the defendant’s repudiation of contract and had thereby brought the contract to an end. Whilst it may be argued that the lawyers’ letter of 19 January 2004 was equivocal in that it did not expressly accept the defendant’s repudiation of the contract although it held the defendant liable for all loss and damage arising from the defendant’s repudiation, the view that the lawyers themselves took on 21 January 2004 was that their earlier letter constituted an acceptance of the defendant’s breach. This is apparent from the italicised portion of the third paragraph of that letter as quoted above. Although now the plaintiff realises that it might have been precipitate in accepting the defendant’s repudiation, I think it is too late for the plaintiff to change its position. Accordingly, I consider that the contract ended on the evening of 19 January 2004 and therefore the obligation to mitigate arose the next day.
[58] This brings us squarely to the issue on which the Assistant Registrar decided against the plaintiff below.
Did the plaintiff act reasonably in not chartering the Puma?
[59] It is established law as noted in McGregor on Damages (17 Ed, London Sweet & Maxwell 2003) at para 7-064 that in the case of a breach of contract, the injured party is only required to act reasonably when mitigating his loss and that the standard of reasonableness is not high since the defendant is an admitted wrongdoer. At para 7-076, the same text notes that the criterion for reasonableness is, per James L.J. in Dunkirk Colliery Co v Lever (1878) 9 Ch.D. 20, that the claimant is not “under any obligation to do anything other than in the ordinary course of business”. It is also pertinent, having regard to the facts of this particular case, that according to para 7-072 of McGregor, one of the rules on what a claimant need not do in order to attain the required standard of reasonableness is that he need not risk his money too far. The passage reads:
The above legal principles are not controversial. In this case, the main dispute revolves around an assessment of the facts in relation to these principles.
[60] The defendant contended that the plaintiff failed to take all reasonable steps to mitigate its loss because it:
The Assistant Registrar had agreed that the plaintiff’s failure in relation to the first two points meant that it had not acted reasonably in mitigation.
[61] I have found above that the plaintiff’s obligation to mitigate arose on 20 January 2004. It was clear from the evidence of both Mr Malik and Mr Sivananthan that in fact the plaintiff had not waited till 20 January 2004 to look for another vessel. Instead, as soon as Mr Malik had found out on the morning of 19 January about the state of the Asia Star’s tanks, he instructed Mr Sivananthan to look for an alternative vessel. As a result of the searches made, the plaintiff was offered first the Mount MacKinney and subsequently the Puma. The first vessel was rejected and the defendant had no quarrel with that rejection.
[62] As regards the Puma, the defendant contended that the evidence showed that it was available to the plaintiff on 20 January 2004. It said that the plaintiff could, and should have, confirmed and entered into a fixture for the Puma because:
In the defendant’s view, it was unreasonable for the plaintiff not to have accepted the Puma at US$27.50pmt when it became clear that its offer of US$25.50pmt was not acceptable to the Puma’s owners. The more pressing need was to avoid cancellation from Agrima by accepting the nearest prompt vessel (ie the Puma) which had a realistic chance of delivering the Agrima cargo by the agreed shipment date of mid February 2004.
[63] The plaintiff, however, took the view that it had been presented with a number of problems related to the chartering of the Puma which militated against an unconditional acceptance of the offer made by the owners of the vessel on 20 January 2004. The first problem was that this vessel was much bigger than the Asia Star and although the owners of the Puma were agreeable to charging the plaintiff freight for 36,000mt instead of the vessel’s full capacity of 40,000mt, even this concession meant that the plaintiff would have to find an additional 14,500mt of cargo or pay dead freight for that amount of cargo. This meant, as Mr Malik testified, that if the plaintiff was going to take the Puma it would have to ensure that it could purchase, on an urgent spot basis, the additional cargo. This additional cargo would have been priced at the then prevailing market price plus a premium for spot delivery. As at 20 January 2004, the plaintiff had not yet looked for the additional cargo. The second problem was that it was necessary for the vessel to arrive at Belawan by 25 January 2004 in order to avoid additional penalties payable to the shippers. Thirdly, there was the concern of the plaintiff to reduce its extra expenditure as much as possible which was why it thought chartering the Puma would be more commercially viable if the owners agreed to the lay time, freight and demurrage rates proposed by Mr Malik. The plaintiff also considered that it might have a problem finding alternative storage facilities for the additional cargo at the discharge ports in case it was not able to sell the additional cargo before the vessel’s arrival at the discharge ports. As at 20 January 2004, the plaintiff had no ready buyer for the additional cargo and was not certain that it would be able to effect a quick resale of the cargo.
[64] It would appear from the evidence that despite this plethora of problems, Mr Malik was satisfied that it would be in the plaintiff’s interests to charter the Puma if its owners would accept the freight, demurrage and lay time rates that he proposed on 20 January evening. The owners of the Puma, however, were not interested in this offer and failed to respond to it either that day or the next. In my view, it was reasonable on the part of the plaintiff to put forward a counteroffer to the one made by the owners of the Puma since the hiring of the Puma would give the plaintiff the various problems enumerated in [63] above. The defendant made much of the fact that there was only a two dollar difference in the freight rate proposed by the owners of the Puma and that proposed by the plaintiff. That, however, was not the only perspective from which the matter had to be viewed. Mr Malik stated that in the absence of additional cargo, the dead freight loss would be between US$400,000 and US$500,000 if the Puma was chartered. In fact, the dead freight would have amounted to US$464,000 if it would have to be computed on a cargo of 14,500mt. This was because the owners of the Puma had offered freight at US$27.50 on the basis of one load port/one discharge port only. The plaintiff’s intention all along was that there would be two load ports (Belawan and Pasir Gudang) and three discharge ports (Mersin, Izmir and Crebze) and therefore the actual freight rate would have been US$32pmt (US$27.50 + US$1.50 x 3) based on the Puma offer. The counteroffer put forward by the plaintiff was lower overall in that quite apart from the base freight rate being US$25.50pmt, for additional ports, the plaintiff would pay only US$20,000 as a lumpsum per load port and US$23,000 per discharge port. There would therefore have been a substantial difference between the amount due to the Puma under the plaintiff’s proposal and that due under the owners’ proposal.
[65] Acting reasonably in mitigation does not mean that the plaintiff had to accept the terms offered by the Puma without negotiation. It would be recalled that mitigation principles do not require the injured party to incur extraordinary expenditure or act otherwise than in the ordinary course of business. In the ordinary course of business, a charterer of a ship will negotiate with the shipowner to get the best possible terms he can in the prevailing market. In this case, Mr Malik’s testimony was that at the material time, he was of the view that the freight rate of US$27.50 quoted by the Puma was too high because the additional cargo, if the plaintiff was able to procure the same, would be sent to Red Sea ports and at that time the freight for such ports was about US$20. He therefore considered that his offer of US$25.50 on the entire cargo to be shipped (including the Asia Star cargo) was reasonable. In this respect, I note that the defendant did not call any evidence on what the then prevailing freight rates were for cargo destined for the Red Sea and Turkey. The defendant used the Asia Star freight as comparison but this was not a proper comparison as the Asia Star was concluded in November 2003 more than two months earlier and the Asia Star charter was an advance charter and not a spot charter.
[66] As for the demurrage rate, the Asia Star’s demurrage rate was US$11,000 per day and the owners of the Puma had initially offered US$17,000 per day and then reduced that to US$16,000 per day while the plaintiff counter-offered US$14,000 per day. No evidence was led by the defendant as to what the demurrage of the Puma ought to be or whether the plaintiff was acting unreasonably in counter-offering US$14,000 per day.
[67] As there was no evidence on what the market freight rate and demurrage rate were on 20 January 2004, it was not correct for the Assistant Registrar to conclude that the plaintiff was only trying to maximise profit when it negotiated to try and obtain reduced rates. It was not put to the plaintiff that its only reason to negotiate with the Puma was that it was trying to maximise its profit. Nor was there any basis to say that the plaintiff was acting unreasonably in this respect. The plaintiff was in an extremely difficult position: it would not be able to meet the extended agreed shipment dates and even if its suppliers and buyer agreed to further extensions, it faced the prospect of paying almost half a million US dollars more for a replacement ship. Mr Malik kept repeating in court that this was a big drain on the plaintiff’s resources and that the plaintiff was in a dilemma. He said that at that time, that amount of money looked very big and there was no one who was coming forward to help the plaintiff out. By “no one”, I assume he was referring to the defendant.
[68] In the events that happened, the plaintiff was faced with a huge claim from Agrima and also suffered a substantial loss of profit in respect of the cancellation of part of Agrima’s order. It turned out that the plaintiff would have lost less had it chartered the Puma and paid the dead freight on the basis of the rates quoted by the owners. This result cannot mean that the plaintiff was unreasonable in putting forward a counteroffer. On 20 January 2004, the plaintiff knew that it was faced with a substantial additional expenditure for the Puma but did not know what the reaction of its suppliers and buyer would be. It had up to that date managed to obtain extensions from both parties and was hopeful that they would be equally indulgent once it could give them confirmation that it had chartered a substitute vessel with a confirmed lay time within January 2004. I do not think that it was unreasonable in so hoping bearing in mind its previous relationship with these parties and the flexibility previously shown by them. On the other hand, chartering the Puma was a risky and difficult decision to make. If it had chartered the vessel, the plaintiff would have been exposed to very substantial dead freight and would have had to risk expense in buying additional cargo at spot prices in the hope that it would be able to sell that cargo at its destination. Such a sub-sale might not have made a profit for it because, as the defendant’s expert on palm oil trade testified, back-to-back buying/selling on the spot market usually did not give a trader any profit margin due to the fact that it was a very open market. In order to make a profit, most companies would take a position in that they would either buy in advance if they thought the market was going up or they would sell in advance if they thought the market was going down. Spot trading was not a desirable activity.
[69] Another factor that has to be borne in mind when considering whether or not the plaintiff acted reasonably in not immediately accepting the Puma’s offer is the influence that the defendant’s conduct would have had on it. On that day, the defendant had informed the plaintiff that it still hoped to resolve the problem itself and also wrote to the plaintiff that it was trying to solve the problem with the plaintiff. Mr Malik testified in answer to a question from the court that this e-mail had given him an expectation that the defendant might be able to give him a substitute vessel. Therefore, the plaintiff submitted, on 20 January 2004, when Mr Malik was negotiating to charter the Puma, he was also keeping in mind the possibility that the defendant or various brokers that he had approached would revert with other vessel options which were more suitable than the Puma. In the event, no other options were made available over the next few days. The plaintiff, however, would not have known that on the evening of 20 January 2004 when it made its counteroffer in respect of the Puma. It was therefore reasonable for it not to grab the Puma but to follow its usual procedure of negotiating for the best possible terms.
[70] The defendant submitted that the plaintiff ought to have made a comparison of the losses it would suffer if no shipment at all took place against the additional expense of chartering the Puma at a freight rate offered by the Puma owners before abandoning the Puma charter altogether. The plaintiff’s response was that this contention was flawed because:
Earlier in his judgment, Rooke J had also cited textbook authority to the effect that the fact that the expenditure of money was required to avoid a larger loss, would not excuse the plaintiff from making that expenditure if it was reasonably small and the chances of avoiding the greater loss were favourable but that “the plaintiff is not bound to embark on a speculative venture for the defendant’s benefit”.
[73] This brings me to the other finding of the Assistant Registrar which was that the plaintiff’s failure to inform its counterparties of the rejection of the Asia Star and the availability of the Puma on 20 and 21 January 2004 was unreasonable. The plaintiff’s position on this issue was that on the contrary if it had told Indomas and Agrima on 19 January that that vessel’s tanks were unsuitable, such notification would have triggered off immediate cancellations of the contracts because at that date there was no suitable substitute vessel. It had therefore acted reasonably and prudently in not conveying this information until it had had a chance to put forward a viable alternative to its counterparties. I accept this argument. Indomas and Agrima had already given the plaintiff two extensions of the shipment deadline and if they had been told that Asia Star was unfit to carry the cargo without at the same time being told that a new vessel had been fixed with acceptable laycan dates, there was a good chance that they would not have wanted to proceed with their contracts with the plaintiff. As far as the Puma was concerned, it would have been premature for the plaintiff to inform these parties about it until the vessel had been fixed even on a “subject to” basis. It was the plaintiff’s intention, if its counteroffer to the Puma owners was accepted, to confirm the vessel subject to the following term:
If the plaintiff had been able to do that, it could then have ascertained from Indomas and Agrima whether the Puma’s laycan was acceptable to them before lifting the “subject to” term. However, the Puma owners did not revert on 20 January 2004 and there was no evidence that the vessel was still available for charter on 21 January 2004 had the plaintiff then wished to accept the owners’ last offer. It should be noted that the broker Mr Sivanathan gave evidence that vessels could be chartered in a time span ranging between five minutes and two to three hours. There is no reason why the owners of the Puma would have not been negotiating with other parties at the same time as they negotiated with the plaintiff. The fact that they did not bother to respond to the counter-offer, not even to reject it, could well have been because they had already found better alternative employment for their vessel. It would have damaged the plaintiff’s credibility with its contracting parties had it told them anything about the Puma before the fixing was firmed up.
[74] The Assistant Registrar found that Indomas and Agrima would not have cancelled their contracts and would have further extended the shipment deadline had they been informed about the availability of the Puma on 20 or 21 January 2004. I am persuaded that this finding was against the weight of the evidence. The Assistant Registrar had first found that the cargo would have to be loaded (ie loading completed) by around 23 January 2004 in order for the vessel to arrive in Turkey for delivery by mid February 2004 as required by Agrima. There was nothing wrong with that finding but he then went on to infer, in my view incorrectly, that Agrima would have agreed to a substitute vessel with a laycan of 25 to 31 January 2004. He based this finding on the evidence of Ms Kestelli Isinsu, the managing director of Agrima, who testified on behalf of the plaintiff. In my view, as the plaintiff submitted, the Assistant Registrar misconstrued Ms Isinsu’s evidence.
[75] Ms Isinsu’s testimony was that it took about 20 to 22 days for a vessel sailing from Malaysia to arrive at the first load port in Turkey. In her affidavit, she said that the shipment of the goods she had purchased from the plaintiff was to be effected from Indonesia and Malaysia by 15 January 2004 and was expected to arrive in Turkey within the first half of February. It was on that basis that Agrima itself had contracted with its sub-buyers to deliver the cargo to them by mid February 2004. She said that on 23 January 2004, she received information that the Asia Star was cancelled and that was why that same day Agrima sent a letter to the plaintiff putting it on notice that it was in breach of contract. The plaintiff had then asked Agrima whether it could postpone the shipment and ship the cargo on Chembulk Barcelona but Agrima had rejected that suggestion as that vessel would not arrive in Turkey until early March. According to Ms Isinsu, on 23 January 2004 she took the view that it was impossible for the plaintiff to obtain a new vessel that would be on time to deliver the cargo in accordance with the plaintiff’s contracts with Agrima. She testified that if the vessel sailed on 23 January 2004, it might arrive on time. The defendant’s counsel then asked her:
To this Ms Isinsu answered:
The Assistant Registrar took that last answer as meaning that Ms Isinsu had agreed that a vessel with a laycan of 25 to 31 January would have been able to deliver Agrima’s cargo by the middle of February.
[77] As for the Assistant Registrar’s finding that Indomas would have agreed to a shipment on the Puma had it been told of the availability of this vessel on 20/21 January 2004, that finding was contradicted by testimony given by one Ms Cherie Thomas Toh from Indomas. The Assistant Registrar disregarded Ms Toh’s evidence because he found that there was some difficulty with her credibility and inconsistencies in other parts of her evidence. However, Ms Toh was the one in Indomas who cancelled all the contracts on 22 January 2004 and her testimony that Indomas would not have agreed to a further extension was corroborated by the prior correspondence between Indomas and the plaintiff in respect of the second time extension. Indomas had agreed reluctantly to the second extension and had threatened to cancel the contracts if the plaintiff failed to lift the cargo within the extended deadline given. The subsequent cancellation was consistent with the earlier threat. Further, Indomas’ motive for cancelling was clear. The market was moving up and Indomas was able to resell all of the cargo it had previously assigned to the plaintiff. It is also noteworthy that Indomas did not make any claim for loss of profits or any other loss occasioned by the plaintiff’s breach of contract thus indicating that it benefitted from the cancellation.
[78] Having considered the evidence and the arguments therefore, I must disagree with the findings on mitigation made by the Assistant Registrar. In my judgment, the plaintiff acted reasonably in its attempt to mitigate the loss it was facing in the light of the defendant’s breach of contract. It was not unreasonable for the plaintiff not to charter the Puma on the terms offered to it by the Puma owners on 20 January 2004.
Measure of damages
[79] I now move to consider the issues of the correct measure of damages to be applied and remoteness.
[80] To recap, the plaintiff’s claim is for:
The first question that arises is whether as a matter of law the plaintiff is entitled to recover the sums claimed under paras (a) and (b) above. The defendant’s submission is that the plaintiff cannot do so because these two claims are too remote and cannot be recovered under established principles.
As the judge pointed out, his summary of the law was supported by the authorities to which he was referred including the then current edition of McGregor on Damages, the case of Nissho v Livanos (1941) 69 Ll.L.Rep 125 and A/S D/S Heimdal v Questier Co. Ltd. (1949) 82 Ll.L.Rep 452. That there has been no change in those basic principles since 1996 when The Kriti Rex was decided is borne out by the 2003 edition of McGregor on Damages which states at para 27-047:
McGregor also makes clear in the paragraphs that follow that the first measure is the relevant one where the second course of action is not open to the claimant because no market exists at the place of delivery in which he can buy replacements and the second measure is the relevant one where the first course of action is not open to the claimant because no suitable substitute transport is available. The same edition of McGregor also expressly endorses the decision reached in The Kriti Rex.

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The "Asia Star"

Grounds of decision

Introduction

US$698,889.88

US$823,800.00

(c) Penalty charges imposed by the plaintiff’s supplier PT Pacific Medan Industri (“Pamin”) for delay in loading

US$209,990.83

MYR558,467.31

Summary of relevant facts

The judgment below

The appeals

Mitigation

Had the duty to mitigate arisen?

Did the plaintiff act reasonably in not chartering the Puma?

Measure of damages