The “Asia Star”

JurisdictionSingapore
CourtCourt of Three Judges (Singapore)
Judgment Date19 March 2010
Date19 March 2010
Docket NumberCivil Appeal No 63 of 2009
The Asia Star

Chan Sek Keong CJ

,

Andrew Phang Boon Leong JA

and

V K Rajah JA

Civil Appeal No 63 of 2009

Court of Appeal

Civil Procedure–Assessment of damages–Appeals–Appeal from High Court decision setting aside assistant registrar's assessment of damages–Principles governing appellate court's powers of review

Damages–Mitigation–Breach of terms of charterparty by shipowner–Charterer's failure to mitigate by chartering available alternative vessel–Theoretical justifications of duty to mitigate–Reasonableness in mitigation

Damages–Mitigation–Breach of terms of charterparty by shipowner–Charterer's failure to mitigate by chartering available alternative vessel–Whether charterer acted reasonably in failing to mitigate its loss

Damages–Mitigation–Breach of terms of charterparty by shipowner–Charterer's failure to mitigate by chartering available alternative vessel–Whether duty arose to inform defaulting party of available options for mitigation

Damages–Mitigation–Breach of terms of charterparty by shipowner–Charterer's failure to mitigate by chartering available alternative vessel–Whether objective standard of reasonableness imposed duty to notify party in breach of available and proposed measures in mitigation

This was an appeal against the High Court's decision to set aside the assistant registrar's assessment of damages. Under the terms of a voyage charterparty between the parties, the appellant shipowners were obliged to present the vessel at the respondent charterer's nominated ports for loading. They failed to do so at the stipulated time; in addition, the vessel was also found to have been unsuitable to receive the cargo. The charterer rejected the vessel and no cargo was loaded. The assistant registrar found that the charterer acted unreasonably in failing to engage an available alternative vessel. As it failed to mitigate its loss, the charterer was only entitled to the difference between the freight it would have paid for the replacement vessel and the freight it was originally bound to pay for the owners' vessel. On appeal to the High Court, the judge found that the charterer had acted reasonably to mitigate its loss and increased the award of damages almost fivefold.

Held, allowing the appeal:

(1) The duty to mitigate had its limits. It could not 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. What amounted to too great an expense or too great a risk of the aggrieved party's money was a question of fact. On the facts, the potential expected loss was far greater than the additional outlay required of the charterer to charter the replacement vessel. It was not unreasonable to expect the charterer to incur that outlay, considering the potentially ruinous damages it faced if it did nothing: at [47] and [56].

(2) An aggrieved party handicapped by its own financial inability would not be compelled to take measures that would be financially prohibitive. On the facts of the present case there was no objective evidence adduced by the charterer that the additional cost it would have been put to was financially prohibitive: at [60].

(3) On the facts, the charterer did not believe that it would be assuming the risk of dead freight and the risk of having unsaleable cargo on its hands. The evidence indicated the issue of dead freight and the purported difficulties of securing and selling off additional cargo on the spot market played no part in the charterer's failure to charter the alternative vessel: at [70].

(4) The objective standard of reasonableness required the aggrieved party which had to incur substantial additional expenditure in chartering a replacement vessel to notify the defaulting party of any alternative vessels available for charter as well as the particular course of action which it proposed to take. Except in cases of urgency where such communication was rendered impractical, the aggrieved party should ask the defaulting party if it would be willing to bear or share the additional cost: at [75] and [76].

[Observation: The inquiry into reasonableness that lay at the heart of the principle of mitigation amounted to the common law's attempt to reflect commercial and fact-sensitive fairness at the remedial stage of the legal inquiry. The concept of reasonableness in mitigation was a flexible one. It barred an aggrieved party from profiting or behaving unreasonably at the expense of the defaulting party; it encapsulated complex interplaying notions of responsibility and fairness. It conferred on the courts considerable discretion in evaluating the facts of the case at hand in order to arrive at a commercially just determination: at [32].

The principle that the court would not weigh nicely on sensitive scales the measures taken by an aggrieved party to mitigate its loss would ordinarily apply more strongly in cases where the question before the court was whether the aggrieved party engaged in unreasonable action as opposed to unreasonable inaction. Once the defaulting party established that the aggrieved party had reasonable options before it, greater justification would usually be needed from the aggrieved party which, despite knowing that it had to act reasonably to mitigate its loss, did nothing at all: at [45].]

Asia Star, The [2006] 3 SLR (R) 612; [2006] 3 SLR 612,HC (refd)

Asia Star, The [2007] 3 SLR (R) 1; [2007] 3 SLR 1,CA (refd)

Asia Star, The [2008] SGHC 92 (refd)

Asia Star, The [2009] 2 Lloyd's Rep 387 (refd)

Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452 (distd)

British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 (refd)

Clippens Oil Co Ltd, The v The Edinburgh and District Water Trustees [1907] AC 291 (refd)

Costello et al v City of Calgary (1997) 152 DLR (4th) 453 (folld)

Dunkirk Colliery Co v Lever (1878) 9 Ch D 20 (refd)

Elizabeth Jean Costello and Mary Ann Dickhoff v The City of Calgary (1995) 163 AR 241 (not folld)

Fyffes Group Ltd and Caribbean Gold Ltd v Reefer Express Lines Pty Ltd and Reefkrit Shipping Inc (The Kriti Rex) [1996] 2 Lloyd's Rep 171 (refd)

Garnac Grain Co Inc v H M F Faure & Fairclough Ltd [1968] AC 1130 (refd)

Gebruder Metelmann GmbH & Co KG v NBR (London) Ltd [1984] 1 Lloyd's Rep 614 (refd)

Harlow & Jones Ltd v Panex (International) Ltd [1967] 2 Lloyd's Rep 509 (refd)

Hexter v Pearce [1900] 1 Ch 341 (refd)

Ho Pak Kim Realty Co Pte Ltd v Revitech Pte Ltd [2008] SGHC 230 (not folld)

Ho Soo Fong v Standard Chartered Bank [2007] 2 SLR (R) 181; [2007] 2 SLR 181 (refd)

Jia Min Building Construction Pte Ltd v Ann Lee Pte Ltd [2004] 3 SLR (R) 288; [2004] 3 SLR 288 (distd)

Lesters Leather & Skin Co Ltd v Home & Overseas Brokers Ltd (1948) 82 Ll L Rep 202 (refd)

Mitchell v Kahl (1862) 2 F&F 709; 175 ER 1250 (folld)

OCBC Securities Pte Ltd v Phang Yul Cher Yeow [1997] 3 SLR (R) 906; [1998] 1 SLR 826 (refd)

Patel v Hooper & Jackson (a firm) [1999] 1 WLR 1792 (refd)

Rudd v Lascelles [1900] 1 Ch 815 (refd)

Sivand, The [1998] 2 Lloyd's Rep 97 (refd)

Smailes and Son v Hans Dessen and Co (1906) 94 LT 492 (refd)

Companies Act (Cap 50,2006 Rev Ed) s 388 (1)

Evidence Act (Cap 97,1997 Rev Ed) ss 105, 108

Thio Ying Ying and Loh Yong Kah Alan (Kelvin Chia Partnership) for the appellant

Vinodh Coomaraswamy SC, David Chan and Tan Hui Ru Louisa (Shook Lin & Bok LLP) for the respondent.

Judgment reserved.

V K Rajah JA

(delivering the judgment of the court):

Introduction

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 asThe Asia Star [2009] 2 Lloyd's Rep 387).

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.

The facts

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.

4 In November 2003, the respondent entered into the Charterparty with the appellant for the hire of the Asia Star at a basic...

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