Owners of the Front Ace v Owners of the Vicky 1 [2008] EWCA Civ 101, Court of Appeal
A significant decision in relation to loss of use of a vessel, in which the Court of Appeal supported an alternative method of assessment of damages. This is the time equalisation method, entitling Owners to recover for trading losses sustained during the entire period of a substitute fixture, despite the fact that the fixture lost as a result of the defendant’s wrong was for a substantially shorter period.
Facts
On 12 December 2002 the tanker Vicky 1 came into collision with the VLCC Front Ace at Balikpapan, Indonesia. The Vicky 1 admitted liability for the collision and the assessment of damages was the subject of a referral to the Admiralty Registrar. Vicky 1 conceded that Front Ace was entitled to recover the cost of repairs and associated expenses. The issues before the Registrar related to the loss of a profitable fixture which the Front Ace had entered into with Chevron the day before the collision on 11 December 2002.
Loss of Fixture
Following the collision, the vessel discharged part of her cargo at Balikpapan and then proceeded to another Indonesian port, Cilacap, where she discharged the remainder. After discharging the cargo and completing the collision damage repair work, Front Ace was unable to meet the agreed laycan for the Chevron fixture and on 26 December, Chevron cancelled the charterparty. On 30 December, the Owners of the Front Ace entered into a new voyage charter with Vitol. The freight rate under the Chevron fixture was WS125, but, due to a fall in the market, the rate of the substitute fixture with Vitol was only WS90. The cause of the vessel missing the laycan for the Chevron fixture was disputed, but it was found on the facts that the claimants were entitled to recover the loss flowing from the loss of the fixture. This decision was upheld by the Court of Appeal.
The Court of Appeal then went on to consider the question of assessment of the level of damages to be awarded to Front Ace.
The Registrar awarded damages assessed on a “time equalisation” method of assessment but reduced such damages by 20% on the basis that the losses of Front Ace should be treated as a loss of chance. Vicky 1 appealed against the application of the “time equalisation” method contending that the “ballast/laden” method should be applied. Front Ace appealed against the reduction of 20% to their damages on the basis of the Registrar’s finding of loss of chance.
Ballast/Laden Method
Under the “ballast/laden” method contended for by Vicky 1, both the Chevron fixture and the Vitol fixture would be defined as starting on completion of discharge of the vessel’s previous cargo at Cilacap and finishing at the point of theoretical discharge of the Chevron cargo. In this way, each voyage would have a ballast leg followed by a laden leg (hence the term “ballast/laden” method) and a comparison would be made between the calculated time charter equivalent rate (voyage revenue less voyage expenses) on the lost Chevron fixture and the actual time charter equivalent achieved on the Vitol fixture, for the relevant period.
The Chevron fixture would have ended on 20 January 2003 and provided a profit of US$1,987,765. The Vitol fixture ended on 18 March 2003 and provided a net profit of US$3,180,891.
On the Defendant’s case, the time charter equivalent for the lost Chevron fixture was US$62,371 per day (based on 31.87 days and profits of US$1,987,765.39) and for the Vitol fixture was US$35,773 (based on 88.92 days and profits of US$3,180,891). Therefore, the time charter equivalent difference was US$26,598 and, for the period of 31.87 days, the Registrar ought to have awarded the sum of US$847,648, with a reduction of 1% for agency.
As was recognised by the Registrar and the Court of Appeal, the ballast/laden method has some flaws. Firstly, it is unsuitable for VLCCs which have one major loading area, namely the Arabian Gulf, because it does not reflect the commercial importance to an owner of discharging as closely as possible to the Arabian Gulf. Secondly, it does not take account of different in voyage lengths. In this case, the Vitol fixture, which would have ended on 18 March, was far longer than the lost Chevron voyage, which would have ended on 20 January.
Time Equalisation Method
The Claimant’s case on quantum relied upon the so called “time equalisation” method, as follows. In the period of 57 days between the end of the lost Chevron fixture on 20 January and the end of the Vitol fixture of 18 March, the vessel would have earned an average net figure of US$3,553,622. This figure represented the net earnings over the 57 days, derived from a very large selection of all the likely voyages which the vessel would have been able to perform in that period. Adopting this method, the Claimant’s total loss was US$5,541,387 (US$1,987,765 lost profit from the lost Chevron fixture and US$3,553,622 lost profit for the following 57 days from the end of the lost Chevron fixture until the end of the Vitol fixture), less the profit made on the Vitol fixture of US$3,180,891, giving a total of US$2,360,496.
This “time equalisation” method had the advantage of taking account of the overall position until the end of the substitute charter. However, the Defendants argued that this method was too speculative for use in this context and would result in the court taking into account “uncertain and speculative and special profits”.
The Court of Appeal upheld the Registrar’s decision on the approach to quantum. The Registrar was not bound to apply the “ballast/laden” method in all cases where a claimant loses a fixture as a result of a collision. The method for calculating the loss of profit would depend upon the facts of the particular case. The Court of Appeal found that the experts appointed by each side were in agreement that the “time equalisation” method was the appropriate methodology and that in all the circumstances of this case the Registrar was entitled to prefer this methodology. The appeal of Vicky 1 was disallowed.
On the second issue – the appeal by Front Ace – the Court of Appeal held that it was not correct to assess damages on the basis of loss of chance in circumstances where it could be established that the Front Ace would have been employed during the period of loss of use resulting from the collision. The appeal of Front Ace was allowed and the damages were awarded in full.
Conclusion
Each case should be dealt with in light of its own particular facts with the objective of reasonably and accurately assessing what profit was lost as a result of the collision. In the case of the Front Ace it was appropriate to adopt the “time equalisation” method, but in other cases, involving other types of vessel engaged in different trading patterns, the “ballast/laden” may be more appropriate.