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Grounds publishedDecided 19 Mar 2010
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Court of Appeal

The “Asia Star”

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[2010] SGCA 12Case no. Civil Appeal No 63 of 2009

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  1. V K Rajah JA (delivering the judgment of the court):

  2. Introduction

  3. [1] This is an appeal against the decision of the High Court judge (“the Judge”) setting aside Assistant Registrar Chew Chin Yee’s assessment of the damages that arose from the appellant’s failure to deliver to the respondent a vessel (“the Asia Star”) in accordance with the terms of a voyage charterparty (“the Charterparty”). The assistant registrar (“the AR”) found that the respondent failed to act reasonably to mitigate its loss in that it did not hire an alternative vessel which was available at the material time – viz, the Puma – to carry the intended cargo. He awarded the respondent the sum of US$302,000, which represented the additional expense that the respondent would have been put to had it hired the Puma and thereby fulfilled its duty to mitigate its loss (see The “Asia Star” [2008] SGHC 92 (“the AR’s judgment”)). On appeal to the High Court, the AR’s factual findings on mitigation were reversed by the Judge and the award of damages increased nearly fivefold (see The “Asia Star” [2009] SGHC 91 (“the Judge’s judgment”), which is also reported as The “Asia Star” [2009] 2 Lloyd’s Rep 387).

  4. [2] The issue of mitigation lies at the heart of this appeal. Specifically, the question which we have to decide is this: did the respondent act reasonably to mitigate its loss after it learnt that the appellant would not be able to supply the Asia Star as promised? After carefully considering the parties’ submissions and the evidence, we have decided to allow the appeal and restore the decision of the AR – albeit with an arithmetical correction to the quantum of damages due to the respondent. We will give our detailed reasons after outlining the factual setting and the decisions made below.

  5. The facts

  6. [3] The appellant is the owner of the Asia Star. The respondent is a Malaysian company which, amongst other businesses, trades in refined oil products. It claims to be one of the largest traders of palm oil in Malaysia and Indonesia, and charters up to five ships a month to carry the 800,000mt to 900,000mt of palm oil products that it trades in annually. The respondent may be said to be a sophisticated player in the palm oil trade, and one which is familiar with shipping practices and issues to boot.

  7. [4] In November 2003, the respondent entered into the Charterparty with the appellant for the hire of the Asia Star at a basic freight rate of US$32.00 per metric tonne (“pmt”) based on one load port, with a further US$1.00 pmt to be paid for each additional load port. The vessel had a tonnage of 22,756mt and a capacity to carry up to 24,581mt of cargo. It was agreed that a minimum of 21,500mt of palm oil would be loaded onto the vessel for carriage to and delivery at ports in the Middle East, Turkey and the Black Sea.

  8. [5] The shipment of 21,500mt of palm oil was intended to fulfil the respondent’s contractual obligations to sell palm oil to a Turkish company, Agrima Ic Ve Dis Ticaret Pazarlama Ltd (“Agrima”), under a series of contracts entered into between September and December 2003 (“the Agrima contracts”). Pursuant to the Agrima contracts, the respondent had to ship 21,500mt of palm oil between 15 December 2003 and 15 January 2004 (“the original Agrima shipment period”), with the cargo to be delivered by the middle of February 2004. Whilst the Agrima contracts were being concluded, the respondent entered into another series of contracts (collectively, “the purchase contracts”) to purchase 24,500mt of palm oil from three suppliers (collectively, “the Suppliers”) – namely, PT Pacific Indomas (“Indomas”), PT Pacific Medan Industri (“Pamin”) and Pacific Oil and Fats Industries Sdn Bhd (“Pacoil”). The palm oil purchased under these contracts was later nominated as the cargo to be loaded onto and carried on board the Asia Star (“the Cargo”).

  9. [6] We should at this juncture point out that the respondent did not enter into the purchase contracts with the specific intention of using the palm oil purchased thereunder (ie, the Cargo) to fulfil its obligations under the Agrima contracts. The respondent – being a large trader in edible oils (such as palm oil) – bought and sold a vast quantity of such oils every month. What it bought would subsequently be allocated to various purchasers depending on trade requirements and vessel availability. It also bears mentioning that the respondent and the Suppliers appear to be related to one another, and share some common directors. Further, Agrima has a close relationship with the respondent and has been the latter’s sole agent in Turkey since 2004.

  10. [7] By agreement between the appellant and the respondent, the loading period for the Asia Star was to be between 27 December 2003 and 4 January 2004 (“the original loading period”). The appellant was obliged to present the vessel at the respondent’s nominated load ports in Belawan, Indonesia, and Pasir Gudang, Malaysia, within that period, whereupon the Cargo would be loaded on board by the supplier concerned (specifically, loading at Belawan would be carried out by Indomas and Pamin, while loading at Pasir Gudang would be carried out by Pacoil). The vessel was to call at Belawan first.

  11. [8] Unfortunately, the Asia Star was unable to reach the nominated load ports within the original loading period. The vessel was initially delayed for a few days in South Korea due to bad weather and a change in her discharge schedule. Subsequently, on 5 January 2004, the appellant notified the respondent of a further delay when the vessel was unable to discharge her cargo in China due to the sudden imposition of a ban on beef tallow originating from the United States. The appellant asked for loading to commence only on 15 January 2004, a request which the respondent acceded to. In turn, the respondent asked the Suppliers for an extension of time to load the Cargo. Where Indomas was concerned, it had earlier agreed, when the Asia Star was delayed in South Korea, to extend the date for completion of loading until 15 January 2004. After it was notified by the respondent about the further delay of the vessel in China, it agreed to extend the date for completion of loading again, this time, until 21 January 2004. Pamin and Pacoil, on their part, did not expressly agree to an extension of time for loading, and reserved their rights to charge any penalty, storage charges and other charges that they might incur as a result of the delay in loading. Where Agrima was concerned, it agreed to extend the original Agrima shipment period until 21 January 2004.

  12. [9] On 19 January 2004, the Asia Star finally berthed at Belawan. Upon arrival, however, the vessel’s cargo tanks were found by the respondent’s surveyors to be unfit for receiving the Cargo. According to the surveyors’ report, the coating of the cargo tanks had rusted as well as blistered and the cargo tanks were generally in poor condition, giving rise to a risk of contamination. The respondent promptly sent the appellant a solicitor’s notice on the same day (ie, 19 January 2004) asserting that the appellant was in breach of the Charterparty. At the same time, the respondent suggested that the appellant could discharge its obligations under the Charterparty by substituting the Asia Star with another more acceptable vessel to carry out the voyage. The appellant responded, likewise on 19 January 2004, to say that no substitute vessel was available. On 20 January 2004, it informed the respondent that it had made efforts to improve the condition of the Asia Star’s cargo tanks by cleaning them and invited the respondent to re-inspect the tanks in order to determine their suitability. The respondent did not respond to the offer and the Asia Star left Belawan on 21 January 2004. No cargo was ever loaded onto the vessel.

  13. [10] During this period, the respondent was not inactive. It attempted to secure an alternative vessel to carry the Cargo. Its inquiries began on 19 January 2004, even before the Asia Star was found to be unfit to receive the cargo. That same day, the respondent’s shipbroker found a substitute vessel – viz, the Puma, which, with a maximum cargo capacity of 40,000mt, was a much larger vessel than the Asia Star. The owners of the Puma indicated that loading of the Cargo at Belawan could commence by 27 or 28 January 2004, based on the estimation that the vessel would arrive at Pasir Gudang on 26 or 27 January 2004. However, the respondent was unable to reach an agreement with the owners of the Puma.

  14. [11] On 20 January 2004, several exchanges took place between the owners of the Puma and the respondent. The offers made by the owners of the Puma and the counter-offers made by the respondent may be summarised as follows:

  15. [12] The negotiations between the owners of the Puma and the respondent broke off abruptly following the respondent’s last counter-offer, which was made at 5.32pm on 20 January 2004. The owners of the Puma did not respond to that counter-offer and the respondent did not attempt to engage in further negotiations thereafter. From the picture sketched above, it seems that the discussions broke down as a result of the respondent’s unwillingness to accept a difference in freight rate of just US$2.00 pmt (which was the difference between the highest freight rate demanded by the owners of the Puma (viz, US$27.50 pmt) and the highest freight rate which the respondent was willing to pay (viz, US$25.50 pmt)) – this, despite the willingness shown by the owners of the Puma to treat the vessel as having a total cargo capacity which was less than her actual total cargo capacity so that the dead freight payable by the respondent would be reduced.

  16. [13] On 21 January 2004, the respondent instructed its shipbroker to look afresh for a replacement vessel. It is pertinent to note that, by that time, the respondent had a different requirement. Specifically, it sought a vessel to carry 20,000mt of palm oil to the eastern part of the Mediterranean Sea and another 20,000mt of palm oil to the Red Sea on an urgent basis (see below at [69]). In other words, although the respondent had decided not to hire the Puma, it apparently still needed a vessel with the same total cargo capacity (ie, 40,000mt); it also required the vessel to call at other ports in addition to the original ports of discharge mentioned at [4] above.

  17. [14] Following the departure of the Asia Star, Indomas cancelled all of its contracts with the respondent on 22 January 2004 on the basis that the latter had not complied with the original loading period (as extended by Indomas in the manner outlined at [8] above). Agrima also cancelled the bulk of the Agrima contracts on 23 January 2004, but agreed to allow 5,750mt of palm oil (cf the 21,500mt originally ordered) to be shipped on the Chembulk Barcelona, a vessel which the respondent had earlier chartered on 30 December 2003, with loading to begin in February 2004. Pamin and Pacoil agreed to an extension of the original loading period so as to allow shipment on the Chembulk Barcelona. However, they also sought to penalise the respondent and charged consequential expenses for (inter alia) extended storage and heating in order to restore the quality of the Cargo, which had deteriorated due to the delay.

  18. [15] We pause here to draw attention to two findings made by the AR, which pertain to the facts set out above (see [34]–[35] of the AR’s judgment). The first is the finding that both the Suppliers and Agrima were not informed of the difficulties which the respondent encountered in relation to the Asia Star during the material period. Although the respondent asked the Suppliers and Agrima for an extension of time to load and ship the Cargo, it did not inform them that the Asia Star had been rejected, and that a substitute vessel was available within the appropriate laycan period. The respondent also did not ask Agrima for a further extension of the original Agrima shipment period (see, in this regard, [8] above), and notified Agrima of the Asia Star’s cancellation only on 23 January 2004. The second finding to note is “the urgency of the matter at the material time” (see [35] of the AR’s judgment) if one were to take the various contracts involved at face value. Originally, loading of the Cargo was to have been completed by 4 January 2004. Two extensions of time had already been granted to the respondent by Indomas to present the Asia Star for loading: first, up to 15 January 2004, and then up to 21 January 2004 (see [8] above). As for Agrima, it had agreed to extend the original Agrima shipment period up to 21 January 2004 (see, likewise, [8] above). If the respondent were not able to secure further extensions of time, it would be in breach of its obligations. From this perspective, the respondent’s contractual position at the material time was, as aptly described at [36] of the AR’s judgment, “precarious”.

  19. [16] On 13 February 2004, the respondent commenced Admiralty in Rem No 30 of 2004 (viz, the action from which this appeal stems) against the appellant for damages arising from the latter’s breach of the Charterparty. The question of liability was tried, and the High Court held that the appellant had indeed breached the Charterparty (see The “Asia Star” [2006] 3 SLR(R) 612). The appeal against the High Court’s decision on liability was dismissed by this court (see The “Asia Star” [2007] 3 SLR(R) 1). When the matter went before the AR for assessment of damages, the respondent’s claim comprised the following:

  20. (a) US$698,889.88 for loss incurred on account of the cancellation of the respondent’s contracts with Indomas;

  21. (b) US$823,800 for sums paid in settlement of Agrima’s claim against the respondent as a result of the respondent’s failure to deliver the palm oil promised under the Agrima contracts;

  22. (c) US$357,000 for penalty charges imposed by Pamin for the delay in loading; and

  23. (d) RM558,467.31 for various charges such as interest, storage, reprocessing, transportation and heating charges imposed by Pacoil.

  24. In all, the total value of the respondent’s various heads of claim amounted to about US$2m.

  25. The judgments below

  26. The AR’s decision

  27. [18] The AR took a commonsensical approach in coming to his decision. After carefully analysing the evidence, he determined that “both Agrima and Indomas would, on a balance of probabilities, have accepted the substitution of the Puma to load and deliver the cargo” (see the AR’s judgment at [51]). In addition, he found that the respondent acted unreasonably in not informing the Suppliers and Agrima immediately of the Puma’s availability (albeit at a higher freight rate) and in not requesting for further extensions of time (see the AR’s judgment at [36]). As the respondent knew at the material time that the market for palm oil was a rising one, it was inexplicable for the respondent not to have made strenuous efforts to avoid any cancellation of the purchase contracts since it would, in the event of such cancellation, have been exposed to “potentially ruinous damages” (see the AR’s judgment at [38]). The AR therefore held that the proper measure of damages was the total amount of freight that the respondent would have paid if it had chartered the Puma as a substitute vessel less the amount of freight that it was originally bound to pay for the Asia Star. He calculated the difference between these two amounts to be US$302,000. Both parties now accept that the correct amount should be US$399,500 if the AR’s decision is upheld.

  28. The Judge’s decision

  29. [19] Both the respondent and the appellant appealed against the AR’s decision. The respondent appealed on the grounds that (inter alia) the AR erred in finding that it had not acted reasonably to mitigate its loss, while the appellant appealed on the basis that the respondent had not suffered any damage at all from the appellant’s breach of contract. There were three main questions before the Judge: first, whether the loss suffered by the respondent was indeed caused by the appellant’s breach; second, whether the respondent had acted reasonably to mitigate its loss; and, third, what the appropriate measure of damages should be if the respondent were found to have acted reasonably to mitigate its loss.

  30. [20] The Judge upheld the AR’s finding on the first question (see the Judge’s judgment at [49]). She also held that the respondent’s duty to mitigate arose on 20 January 2004 (see the Judge’s judgment at [57]) – the same day on which the respondent’s negotiations with the owners of the Puma took place. However, she disagreed with the AR’s findings on the second question and ruled that the respondent had acted reasonably to mitigate its loss (see the Judge’s judgment at [78]). As a result, the respondent’s appeal against the AR’s decision was allowed while the appellant’s appeal was dismissed. The detailed reasons for the Judge’s disagreement with the AR will be examined below at [35]–[37]. For now, it suffices to say that the Judge found that: (a) the respondent had acted reasonably even though it failed to charter the Puma on the terms offered to it on 20 January 2004; and (b) consequently, the respondent was not limited to claiming as damages the difference between the freight which it would have paid had it chartered the Puma and the freight payable for the Asia Star. The final sums awarded to the respondent in respect of its various heads of damages were assessed by the Judge at US$1,485,140.55 and RM449,086.90 respectively.

  31. General principles applicable to appeals against assessments of damages

  32. [21] Before dealing with the issues at hand in the present appeal, it is important to briefly set out the basis upon which this court may review a High Court judge’s decision on an appeal from an assistant registrar’s award of damages. The present appeal concerns the Judge’s ruling on the appellant’s appeal against the decision of the AR, who was the original finder of fact. Here, it was the AR – and not the Judge – who had the benefit of seeing and hearing the witnesses first-hand as they gave evidence. Even though this court will give proper deference to an appellate decision of a High Court judge apropos an assistant registrar’s assessment of damages, the High Court judge will ordinarily be in no better a position than this court when it comes to evaluating the evidence. We note that, in this case, the Judge drew her own inferences from the documents tendered to the court, the affidavits filed by the respective parties and the notes of evidence of the hearing before the AR in determining whether the respondent had acted reasonably to mitigate its loss. This court, too, stands in a similar position and may draw the appropriate inferences from the same record of proceedings.

  33. The key issue in this appeal: Mitigation

  34. Overview of the law on mitigation

  35. [22] We turn now to the key issue in this appeal – viz, the question of mitigation; specifically, whether the respondent acted reasonably to discharge its duty to mitigate its loss. For ease of reference, we will in the rest of this judgment use the term “defaulting party” to denote the party who breaches a contract and the term “aggrieved party” to denote the party in respect of whom the contract in question is breached.

  36. [23] We begin with a brief overview of the law relating to mitigation. In a claim for damages for breach of contract, the failure of the aggrieved party to act reasonably to mitigate its loss is a standard defence which the defaulting party usually invokes to reduce the damages payable. It is important, however, to point out that the so-called “duty” to mitigate is not strictly speaking a legal duty which the aggrieved party owes to the defaulting party, in that the latter cannot bring an action against the former for failing to mitigate its loss. The term “duty” as employed repeatedly in the authorities is actually no more than a convenient term of reference for the legal requirement imposed on an aggrieved party to take prophylactic measures to minimise avoidable loss if it wishes to recover all of the loss sustained as a result of the defaulting party’s breach of contract. A breach of the “duty” to mitigate prima facie disentitles the aggrieved party from claiming that part of its loss which, in the court’s view, could have been avoided if reasonable mitigation measures had been taken. From this perspective, the “duty” to mitigate may give rise to an indirect legal “liability” in so far as a breach of this “duty” operates as a legal bar, pro tanto, to recovery of damages. The long-standing characterisation of the legal obligation of an aggrieved party to act reasonably to mitigate its loss as a “duty” is now too entrenched in legal discourse to be dropped. Subject to the clarification which we have just made, therefore, we will employ the terms “the duty to mitigate” and “the principle of mitigation” interchangeably in this judgment to denote this legal obligation.

  37. [24] The basic rules relating to mitigation are well settled. First, the aggrieved party must take all reasonable steps to mitigate the loss consequent on the defaulting party’s breach, and cannot recover damages for any loss which it could have avoided but failed to avoid due to its own unreasonable action or inaction (see Harvey McGregor, McGregor on Damages (Thomson Reuters (Legal) Limited, 18th Ed, 2009) at para 7-004 and British Westinghouse Electric and Manufacturing Company, Limited v Underground Electric Railways Company of London, Limited [1912] AC 673 (“British Westinghouse Electric”) at 689). Second, the aggrieved party who goes beyond what the law requires of it and avoids incurring any loss at all will not be entitled to recover any damages (see McGregor on Damages at para 7-097 and British Westinghouse Electric at 689–690). In such a case, the aggrieved party’s efforts will in effect confer a gratuitous benefit on the defaulting party. Third, the aggrieved party may recover any expenses incurred in the course of taking reasonable steps to mitigate its loss (see McGregor on Damages at para 7-091). In short, the aggrieved party cannot recover avoidable or avoided loss; it may, however, recover expenses reasonably incurred in the course of taking mitigation measures. The evaluation of the aggrieved party’s conduct in mitigation ought to start from the date of the defaulting party’s breach, and the burden of proving that the aggrieved party has failed to fulfil its duty to mitigate falls on the defaulting party (see McGregor on Damages at para 7-019 and Garnac Grain Company Incorporated v H M F Faure & Fairclough Ltd and Others [1968] AC 1130 at 1140). This burden is ordinarily one which is not easily discharged.

  38. [25] The above-mentioned general rules have evolved over the last two centuries without any coherent overarching legal framework. No clear distinction has been drawn in applying these rules to the incapable, the unwilling and (in some cases even) the cynical defaulting party. Many of the early authorities that led to the crystallisation of these rules featured findings made by juries. These findings were neither judicially explained nor capable of being justified by legal reasoning. One can therefore readily understand why Prof Michael G Bridge (“Prof Bridge”) described the principle of mitigation in a tone of despair as being “to a surprising degree theoretically undernourished and underwritten, and subject to hardly any critical examination in the leading texts” (see Michael G Bridge, “Mitigation of Damages in Contract and The Meaning of Avoidable Loss” (1989) 105 LQR 398 (“Prof Bridge’s article”) at p 399).

  39. [26] In Prof Bridge’s article, various theoretical justifications which have been advanced in support of the principle of mitigation are examined. Of these various rationales (which include factual causation, remoteness of damage, contributory negligence, promises and expectations and self-help), what we shall call “the ‘economic efficiency’ theory” is the most attractive and most popular school of thought. This theory suggests that the duty to mitigate seeks to encourage economic efficiency by discouraging waste. It rests on the premise that no legal system should sanction economic waste by allowing an aggrieved party to accumulate loss arising from the defaulting party’s breach of contract when it was within the aggrieved party’s power to curb such loss. While this approach is prima facie attractive, it is, in our view, not entirely convincing for two reasons.

  40. [27] First, it is simply not possible to explain certain aspects of the principle of mitigation by reference to the “economic efficiency” theory alone. As Prof Bridge astutely pointed out, “adverse market movement, to the profit of some actors and to the correlative disadvantage of others, is not in itself [economically] wasteful” (see Prof Bridge’s article at p 405). If the principle of mitigation were justifiable solely by the importance of avoiding or minimising economic waste, then, in a case where the defaulting party’s breach of contract consists of a failure to supply or deliver goods, the aggrieved party ought not to be penalised for its lack of agility in entering a falling market to purchase replacement goods in order to mitigate its loss. The reality, however, is that, where the aggrieved party’s delay in entering a falling market in such a scenario is unreasonable, the principle of mitigation does operate to penalise the aggrieved party even though its delay has caused no loss in the literal sense of the word (see Patel and Another v Hooper & Jackson (a firm) [1999] 1 WLR 1792).

  41. [28] The second reason why we are unconvinced by the “economic efficiency” theory is that, if the law on mitigation were indeed solely underpinned by concerns about economic efficiency, then an aggrieved party whose attempts at mitigation generate even greater loss than the loss which would have arisen had it done nothing at all should not be allowed to recover the additional loss. Yet, the prevailing legal position is that, subject to the reasonableness of the actions of the aggrieved party and the foreseeability of its additional loss, recovery of such additional loss is allowed (see the dicta of Browne-Wilkinson LJ in Gebruder Metelmann GmbH & Co KG v NBR (London) Ltd [1984] 1 Lloyd’s Rep 614 at 633; see also The “Sivand” [1998] 2 Lloyd’s Rep 97).

  42. [29] Prof Bridge concluded, after analysing all the relevant authorities, that “[n]o single [factor] sufficiently explains the requirement of mitigation as a general rule” (see Prof Bridge’s article at p 410). Instead, it would be more accurate to see the principle of mitigation as the product of a complex amalgam of competing sensibilities – one that reflects “several impulses that mollify the strictness of contractual obligation and that are hard, perhaps impossible, to rationalise in their totality” (see Prof Bridge’s article at pp 407–408). We agree.

  43. [30] We should at the same time point out that the complexity involved in identifying a single theoretical justification for the principle of mitigation belies the singular practical focus of the central inquiry which lies at the heart of this principle – namely, the inquiry into whether or not the aggrieved party acted reasonably to mitigate its loss (“the reasonableness inquiry”). Reasonableness forms the one identifiable foundation on which this inquiry – and, in turn, the principle of mitigation – rests. The central question which underpins the reasonableness inquiry is what a reasonable and prudent man in the trade would have done in the ordinary course of his business if he had been in the aggrieved party’s shoes (per James LJ in Dunkirk Colliery Company v Lever (1878) 9 Ch D 20 at 25). Naturally, any answer to the question “What would the reasonable businessman have done?” can, will and may reflect a wide range of values and concerns, some of which may compete with and/or contradict others. For instance, while the principle of mitigation does not require an aggrieved party to nurse the defaulting party’s interests at the expense of its own interests (see Harlow & Jones, Ltd v Panex (International), Ltd [1967] 2 Lloyd’s Rep 509 at 530 per Roskill J), it has also long been said that the aggrieved party must act with both the defaulting party’s interests as well as its own interests in mind (see Smailes and Son v Hans Dessen and Co (1906) 94 LT 492 at 493 per Channell J).

  44. [31] The existence of the duty to mitigate may also appear to be an unfair obligation to impose on the aggrieved party as it is the innocent party in relation to a breach of contract (in that the defaulting party is to blame for the breach of contract). To minimise any potential unfairness to the aggrieved party in this regard, the courts have sought to ensure that the standard of reasonableness required of the aggrieved party will not be too difficult to meet (see, eg, OCBC Securities Pte Ltd v Phang Yul Cher Yeow and another action [1997] 3 SLR(R) 906 at [86]). For instance, the aggrieved party is not required to act in a way which exposes it to financial or moral hazard, such as taking steps which might jeopardise its commercial reputation or partaking in hazardous litigation against a third party to reduce its loss (see Goode on Commercial Law (Ewan McKendrick ed) (LexisNexis, 4th Ed, 2009) at p 136 as well as McGregor on Damages at paras 7-081 and 7-087). The requisite standard of reasonableness is said to be an objective one; yet, it clearly also takes into account subjective circumstances such as the aggrieved party’s financial position (see below at [58]). The reasonableness inquiry, therefore, falls short of being purely objective.

  45. [32] The many sub-rules, qualifications and nuances that have built up around the reasonableness inquiry may not infrequently appear to be confusing and unwieldy. Nevertheless, when one takes a step back to look at the object of this inquiry as a whole, it becomes clear that the inquiry amounts to nothing more than the common law’s attempt to reflect commercial and fact-sensitive fairness at the remedial stage of a legal inquiry into the extent of liability on the defaulting party’s part. The concept of reasonableness in the context of mitigation is a flexible one. In essence, it bars an aggrieved party from profiting or behaving unreasonably at the expense of the defaulting party, and encapsulates complex interplaying notions of responsibility and fairness. As with any principle of law that encapsulates notions of fairness, the principle of mitigation confers on the courts considerable discretion in evaluating the facts of the case at hand in order to arrive at a commercially just determination. The principle embodies a fact-centric flexibility which, whilst remaining in harmony with sound business practice, stands in vivid contrast to the strictness with which rules in other areas of contract law are applied.

  46. [34] The reasonableness inquiry, therefore, is very much a factual one (see Andrew Phang Boon Leong, Cheshire, Fifoot and Furmston’s Law of Contract: Second Singapore and Malaysian Edition (Butterworths Asia, 1998) at p 1029). For this reason, case precedents are of limited guidance as they are specific to their particular factual matrices. Indeed, the dispute in this case essentially boils down to the proper application of the settled principles outlined above to the facts. Ultimately, the questions that need to be asked (and determined) are:

  47. (a) whether – having regard to the potential damages which the respondent would have to pay Agrima if, as a result of the appellant’s default, it failed to deliver the palm oil due under the Agrima contracts – it was reasonable of the respondent to persist in seeking ever lower rates of freight for the Puma when chartering that vessel on the terms offered by her owners would have allowed the respondent to both mitigate its own loss as well as reduce the damages payable by the appellant; and

  48. (b) whether the reasons that caused the respondent to reject the terms offered for the charter of the Puma could justify the Judge’s decision to increase the damages claimable by the respondent from the appellant.

  49. The basis for the Judge’s decision

  50. [35] The Judge gave several reasons why she found the respondent’s failure to charter the Puma reasonable. These included the following:

  51. (a) Negotiating over the cost of hire was not per se an unreasonable act, and the AR erred in holding that the respondent was merely trying to maximise the profits which could be made from chartering the Puma.

  52. (b) It was prudent of the respondent to avoid conveying information of the Asia Star’s rejection to Agrima and the Suppliers until a viable alternative vessel had been found.

  53. (c) It was not clear that both Indomas and Agrima would not have cancelled their respective contracts with the respondent (and would instead have agreed to further extensions of the relevant deadlines) if they had been informed of the Puma’s availability.

  54. [36] The Judge’s most significant finding, however, concerned the failure of the respondent to commit itself to the final freight rate offered by the owners of the Puma. The appellant, both before the AR and before the Judge, made much of the fact that the negotiations between the respondent and the owners of the Puma appeared to have abruptly broken down solely over the relatively paltry difference of just US$2.00 pmt in the proposed freight rate. The Judge found the appellant’s arguments overly simplistic. She pointed out that the difference between the amount payable for chartering the Puma based on the respondent’s proposal and the amount payable based on the proposal of the Puma’s owners was significant once two factors were taken into account, namely: (a) the dead freight payable in respect of at least 14,500 mt of unutilised cargo space on board the Puma (due to her larger capacity), taking the difference between the maximum cargo capacity of the Puma (which her owners were willing to peg at 36,000mt) and the minimum quantity of cargo to be carried on board the Asia Star (viz, 21,500mt of palm oil (see [4] above)); and (b) the lump sum payments which the respondent proposed to make (in place of rateable charges) for each additional load port and each additional discharge port (see the Judge’s judgment at [64]).

  55. The parties’ arguments on appeal

  56. [38] On appeal, the respondent supported the Judge’s reasoning by arguing that a defaulting party must take an impecunious aggrieved party as it found the latter. It pointed to the oral testimony of its head of chartering/operations, Mr Sheik Abdul Malik Mohamed Kassim (“Mr Malik”), to support its contention that the additional payment of US$399,500 which it would have had to make had it hired the Puma did amount, both objectively and subjectively, to a big drain on its resources.

  57. [39] The appellant, on its part, criticised the Judge’s reasoning and argued that a reasonable person in the respondent’s shoes would have chartered the Puma (or would at least have arranged to charter it on a “subject to” basis) for the following reasons:

  58. (a) The failure by the respondent to deliver the promised 21,500mt of palm oil to Agrima and to take delivery of the 24,500mt of palm oil purchased from the Suppliers could have exposed it to potentially large (or “ruinous” (see [38] of the AR’s judgment)) claims from the respective parties concerned.

  59. (b) The cost of hiring the Puma as a replacement vessel was neither objectively prohibitive nor a large drain on the respondent’s resources.

  60. (c) The potential additional expenses that would have been incurred by the respondent if it had chartered the Puma (which would have worked out to US$399,500 at most) were not nearly as prohibitive as the potential loss which the respondent would have faced if it had failed to deliver the Cargo (the potential loss worked out in the end to over US$1m).

  61. (d) The issue of having to pay dead freight if the Puma were chartered was not an obstacle in reality as the real reason for the respondent’s reluctance to accept the terms proposed by the owners of the Puma was the respondent’s desire to earn a larger profit by driving the freight rate down.

  62. Whether the respondent acted reasonably to mitigate its loss

  63. Overview

  64. The appropriate level of judicial scrutiny in assessing whether an aggrieved party’s conduct in mitigation was reasonable

  65. [42] At the outset, the respondent contended that this court should not evaluate the reasonableness or otherwise of its (the respondent’s) conduct in mitigation by combining the unsympathetic vision of hindsight with the use of a fine-toothed legal comb. Ultimately, the respondent’s contentions on this issue boiled down to a single proposition, namely: the court should not subject the mitigation actions taken by an aggrieved party to a minute-by-minute, day-by-day scrutiny with the benefit of hindsight, which form of scrutiny would benefit the defaulting party.

  66. [43] There is certainly support for the view that the court should adopt a generous approach in assessing the aggrieved party’s conduct in mitigation. The respondent relied in particular upon Lord Macmillan’s oft-cited observations in Banco de Portugal v Waterlow and Sons, Limited [1932] AC 452 (“Banco de Portugal”) at 506 as follows:

  67. In a similar vein, the High Court in Jia Min Building Construction Pte Ltd v Ann Lee Pte Ltd [2004] 3 SLR(R) 288 (“Jia Min Building Construction”) noted at [73] that:

  68. [44] While we certainly agree with the foregoing observations, we must also emphasise that they must be understood in their proper context. In Banco de Portugal, the aggrieved party had in fact taken some action to mitigate the situation which it found itself in, viz, it had withdrawn the entire series of compromised notes and had undertaken to exchange all such notes which were presented to it within a limited time. Lord Macmillan’s comments (at 506) were made in response to the defaulting party’s invitation to the court to find that the aggrieved party should have taken some other action which would have reduced its loss even further. There were good reasons for Lord Macmillan to caution that the court should not adopt too stringent a standard in enforcing the duty to mitigate vis-à-vis an aggrieved party – the court is not, after all, the best-equipped arbiter of economic efficiency and the options available to the aggrieved party at the material time. Thus, in cases such as Banco de Portugal, the correct approach for the court to take would be to refrain from engaging in an exacting scrutiny of the aggrieved party’s every act and/or omission. In this regard, it is important to bear in mind that the question which the principle of mitigation requires the court to determine is whether the mitigation measures taken by the aggrieved party were reasonable, and not whether the aggrieved party took the best possible measures to reduce its loss.

  69. Whether it would have been reasonable for the respondent to pay an additional US$399,500 to charter the Puma

  70. [47] It is, of course, axiomatic that the duty to mitigate has its limits. It cannot oblige an aggrieved party to incur great expense or put itself to great inconvenience in stemming the loss resulting from the defaulting party’s breach. Thus, in Lesters Leather & Skin Company, Ltd v Home & Overseas Brokers, Ltd (1948) 82 Ll L Rep 202 at 205, Lord Goddard CJ observed that, where a contract for the sale of goods was breached by the seller failing to deliver the promised goods, the prospective purchaser was not:

  71. In this regard, it is important to bear in mind that it is always a question of fact as to what amounts to too great an expense for the aggrieved party to incur or too great a risk of its money.

  72. [49] We pause to note that the Judge felt that the present case was (see [72] of the Judge’s judgment):

  73. Curiously, this observation was made despite the fact that the plaintiffs in Costello v Calgary (No 1) could, on the facts of that case, have afforded to purchase an alternative plot of land – ie, in Costello v Calgary (No 1), there was no issue of the aggrieved party being impecunious or being unable to afford the cost of adopting the particular mitigation measure which, according to the defaulting party, should have been taken.

  74. [55] Returning to the facts before us, the issue to be addressed is this: was the sum of US$399,500 too great an expense to reasonably expect the respondent to incur upfront in order to mitigate the loss flowing from the appellant’s breach of the Charterparty? The Judge certainly felt that a global sum of nearly US$0.5m was too much for the respondent to pay for a replacement ship. She found some support for this conclusion in the testimony of Mr Malik, who stated during cross-examination that the additional expenditure of US$399,500 was “too huge” and would amount to a “big drain” on the respondent’s finances. It should be noted that this was a bare assertion by Mr Malik and was, furthermore, made for the first time only in the course of cross-examination.

  75. The alleged impecuniosity of the respondent

  76. [57] Our conclusion in the preceding paragraph also disposes of what we will refer to as “the respondent’s impecuniosity argument” – viz, the argument that spending an additional US$399,500 to charter the Puma would have been a huge drain on the respondent’s resources. This was an entirely new argument which counsel for the respondent raised before this court in support of the Judge’s decision. It appears to us that it may have been the Judge’s reliance on Mr Malik’s assertion that the additional sum of US$399,500 would have been a “big drain” on the respondent’s resources (see [55] above) which encouraged counsel for the respondent to pursue this new argument on appeal.

  77. [58] The respondent’s impecuniosity argument is based on the principle set out in para 7-088 of McGregor on Damages that “[an aggrieved party] will not be prejudiced by [its] financial inability to take steps in mitigation” [emphasis in original]. This principle appears to be a corollary of the eggshell-skull rule that the defaulting party must take the aggrieved party as it finds the latter. If the position of the aggrieved party is aggravated because it lacks the means to mitigate the loss suffered, the defaulting party nevertheless remains answerable for the consequences flowing from its wrongful act (see The Clippens Oil Company, Limited v The Edinburgh and District Water Trustees [1907] AC 291 at 303). Applied in the context of a claim for damages for breach of contract, this rule entails that, so long as the aggrieved party acts reasonably to mitigate its loss, it will not be disbarred from pursuing its claim for the actual loss suffered simply because it was unable to take certain mitigation measures which it could otherwise have taken had it had the requisite financial resources.

  78. [59] In support of its contention that the additional outlay of US$399,500 needed for the charter of the Puma would have put a severe strain on its financial resources, the respondent relied entirely on Mr Malik’s bare assertion as outlined at [55] above. Counsel for the respondent was keen to point out that Mr Malik’s assertion was never directly challenged by the appellant. It was also brought to our attention that the words “big drain” were first used by counsel for the appellant herself when she cross-examined Mr Malik; the latter merely agreed to the use of those words to describe the additional expenditure needed to charter the Puma. Relying, in addition, on this court’s decision in Ho Soo Fong and another v Standard Chartered Bank [2007] 2 SLR(R) 181, counsel for the respondent argued that, since an aggrieved party was not obliged to take measures which it could not afford or which were financially prohibitive and onerous, the respondent’s refusal to charter the Puma as a replacement vessel at the freight rate quoted by her owners was reasonable.

  79. [60] In our view, the respondent’s impecuniosity argument is not supported by the facts before the court. The rule referred to in McGregor on Damages at para 7-088 (see above at [58]) is meant to protect an aggrieved party which is handicapped by financial inability from being compelled to take measures that would be financially prohibitive. In the present case, there was no objective evidence adduced by the respondent that the sum of US$399,500 was indeed financially prohibitive. If the respondent intended to rely on such an assertion, it had to adduce concrete evidence to establish that point – this, it did not do.

  80. [62] In our view, a more pertinent statute to refer to would be the Evidence Act (Cap 97, 1997 Rev Ed), which states as follows:

  81. [63] In the present case, the respondent wished to rely on the alleged fact that the additional US$399,500 which it would have had to pay if it had chartered the Puma was a financially prohibitive sum that it could not afford – ie, it wanted the court to believe in the existence of this fact (see s 105 of the Evidence Act). This fact was “especially within the knowledge of [the respondent]” for the purposes of s 108 of the Evidence Act since only the respondent could be fully aware of all the relevant particulars of its own financial position at the material time. Thus, in order to take advantage of the principle set out in para 7-088 of McGregor on Damages, the respondent must satisfactorily establish with cogent evidence that it was indeed unable to afford to spend an additional US$399,500 at the material point in time. As we mentioned earlier (at [60] above), the respondent failed to adduce such evidence. The only evidence raised by the respondent in its favour (apropos its alleged impecuniosity) consisted of the bare assertion of Mr Malik – which was an assertion made for the first time in the heat of cross-examination. The claim by the respondent that the sum of US$399,500 amounted to a “big drain” on its resources was never made prior to Mr Malik’s cross-examination and no objective evidence was ever adduced to support it. The only “proof” cited by the respondent was “negative proof” in the form of the appellant’s failure to query further Mr Malik’s testimony. Given these circumstances, such “proof” is simply not a sufficient basis for this court to regard the respondent’s alleged impecuniosity as having been proved.

  82. The respondent’s alleged concerns about dead freight

  83. [65] We now turn to the issue of dead freight, which was said to be another reason underlying the respondent’s decision not to charter the Puma as a replacement vessel. At [68] of the Judge’s judgment, the Judge elaborated on her reasons for finding that the respondent acted reasonably in not accepting the last offer made by the owners of the Puma vis-à-vis the charter of the vessel as follows:

  84. [66] The above passage, when read alongside the comments at [69]–[70] of the Judge’s judgment, creates the impression that the respondent was, at the time of its negotiations with the owners of the Puma, concerned about the problems posed by dead freight. This, however, is not borne out by the facts. The Judge also entered into a detailed analysis (see [64] of the Judge’s judgment) of the difference between the last offer made by the Puma’s owners (ie, the offer made at 5.06pm on 20 January 2004) and the last counter-offer made by the respondent (ie, the counter-offer made at 5.32pm on the same day). The effect of this was to magnify the problem of dead freight supposedly faced by the respondent at the material time.

  85. [68] Evidently, the issue of dead freight was not as crucial to the respondent as the Judge thought it to be. Furthermore, the issue of securing additional cargo to transport and sell so as to reduce the dead freight payable in respect of the Puma was not a decisive consideration that resulted in the respondent’s failure to charter that vessel. The critical factor was, instead, the freight rate to be paid for the Puma, as can be seen from the following exchange between the AR and Mr Malik:

  86. [69] In addition, we note that the respondent’s shipbroker was instructed to send an e-mail on 21 January 2004 (the day after the negotiations between the respondent and the owners of the Puma broke down, but before the cancellation of all of the respondent’s contracts with Indomas and the bulk of the Agrima contracts) to an entity known as “Sound Tankers” asking it to propose a vessel for the respondent to charter. The material parts of this e-mail (“the 21 January 2004 e-mail”) are set out below:

  87. Our decision on whether the respondent acted reasonably to mitigate its loss

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