V K Rajah JA (delivering the judgment of the
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”  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”  SGHC 91 (“the Judge’s judgment”), which is also reported as The “Asia Star”  2 Lloyd’s Rep 387).
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 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.
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.
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”).
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.
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.
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.
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.
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.
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:
| Offers and counter-offers made |
| || The Puma’s owners (9.50am) || The respondent (time uncertain) || The Puma’s owners (10.19am) |
| Capacity (mt) || 40,000 || 40,000 || 40,000 |
| Laycan (in 2004) || 27–31 Jan || 25–30 Jan || 25–31 Jan |
| Freight (US$ pmt) || 27.50 || 25.00 || 27.50 |
| Demurrage (US$) || 17,000 || 11,000 || 16,000 |
| Offers and counter-offers made |
| || The respondent (2.20pm) || The Puma’s owners (5.06pm) || The respondent (5.32pm) |
| Capacity (mt) || 40,000 || 36,000 || 36,000 |
| Laycan (in 2004) || 25–30 Jan || 25–31 Jan || 25–31 Jan |
| Freight (US$ pmt) || 25.00 || 27.50 || 25.50 |
| Demurrage (US$) || 12,000 || 16,000 || 14,000 |
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...