The claimant, a Hong Kong company, entered into a contract to purchase a given quantity of coal from the respondent, a Singaporean company, for resale to company X and delivery in India. The contract contained a choice-of-law clause providing for the application of English law. The coal was transported on a vessel chartered by the claimant under a voyage charter party, which was of a standard kind providing for typical charges including freight, deadfreight and demurrage. On the basis of a surveyor's report indicating that the coal did not conform to the contractual specifications, the claimant rejected the goods, which were resold by the respondent to another company, Y. The claimant initiated arbitration accusing the respondent of having breached their contract for failing to provide goods in accordance with the contractual specifications and claiming compensation to cover the liabilities it had incurred under the terms of the charter party.

La demanderesse, une société hongkongaise, a conclu un contrat pour l'achat d'une quantité déterminée de charbon à; la défenderesse, une société singapourienne, en vue de la revendre à; une société X et de la livrer en Inde. Le contrat contenait une clause de droit applicable stipulant l'application de la loi anglaise. Le charbon a été transporté sur un navire affrété par la demanderesse conformément à; une charte-partie au voyage de type standard prévoyant les paiements habituels, dont le fret, le faux fret et les surestaries. Se fondant sur le rapport d'un expert maritime indiquant que le charbon n'était pas conforme aux spécifications contractuelles, la demanderesse a refusé la marchandise, qui a été revendue par la défenderesse à; une autre société, Y. La demanderesse a engagé un arbitrage, accusant la défenderesse d'avoir rompu le contrat en ne livrant pas la marchandise conformément aux spécifications contractuelles et demandant des dommages-intérêts afin de couvrir l'indemnisation des charges que lui imposait la charte-partie.

La demandante, una compañía de Hong Kong, concluyó un contrato para la compra de una cantidad determinada de carbón de la demandada, una compañía de Singapur, para su reventa a la compañía X y entrega en la India. El contrato contenía una cláusula de elección de derecho que determinaba la aplicación del derecho inglés. El carbón se transportó en un buque fletado por la demandante con una póliza de fletamento por viaje, que era del tipo estándar y permitía los cambios típicos de flete, flete faso y sobreestadía. De acuerdo con el informe de perito, que señalaba que el carbón no se ajustaba a las especificaciones contractuales, la demandante rechazó los bienes, que fueron revendidos por la demandada a otra compañía, Y. La demandante inició el arbitraje acusando a la demandada de haber incumplido su contrato al no proporcionar los bienes de acuerdo con las especificaciones contractuales y reclamando una compensación que cubriera los costes en que habría incurrido a causa de los términos de la póliza de fletamento.

'3.2 Legal Issues and Arguments

173. Before dealing in detail with the live issues remaining with respect to the claims asserted, the Sole Arbitrator must set out the parameters on the various relevant legal issues.

i) Rules of Construction

174. Claimant's claims in essence arise under or pursuant to the terms of the Contract. The Sole Arbitrator must consider the claims in light of the obligations imposed by the Contract, what those obligations were, whether they were breached and the consequences of any such breach.

175. The Parties' submissions show that the construction of the Contract is uncontroversial. There is no dispute about the effect of the terms of the Contract.

176. The essential rules of construction of contracts under English law provide that words used in a contract must ordinarily be given their plain and natural meaning. (I.C.S. Ltd v. West Bromwich Building Society [I998] 1 W.L.R. 896 ("I.C.S.") per Lord Hoffmann at p. 913 (paragraph 4)). Contracts must however be construed in a way that makes commercial sense because parties are not to be attributed with an intention that they could not have had (I.C.S. also at p. 913 (paragraph 4)). The construction must be objective. The agreement that the parties actually reached must be given effect and what must be ascertained is the meaning the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. (I.C.S. at p. 912; Reardon Smith Line v. Hansen-Tangen [I976] 1 W.L.R. 989 per Lord Wilberforce at p. 996).

177. "Background knowledge" or the "factual matrix" against which the contract is to be construed includes any background facts which would have affected the way in which the language of the document would have been understood by a reasonable man and which was available to both parties in the situation in which they were at the time of the contract. Facts known to just one party are irrelevant (I.C.S. at p. 912; Reardon Smith Line v. Hansen-Tangen [I976] 1 W.L.R. 989 per Lord Wilberforce at p. 996). Evidence of subsequent conduct is irrelevant and inadmissible (James Miller v. Whitworth Estates (Manchester) Ltd [I970] A.C. 572 per Lord Reid at p. 603). Evidence of subjective understanding is irrelevant and inadmissible (Prenn v. Simmonds per Lord Wilberforce at pp 1385; I.C.S. at p. 913). Evidence of negotiations is irrelevant and inadmissible (I.C.S. at p. 913).

ii) Assessment of Damages

178. The relevant rules for assessment of damages are not disputed between the Parties.

179. Under English law, a claimant is entitled to claim damages for wasted expenditure incurred in reliance on the contract or as a result of the defendant's breach: see Chitty on Contracts, 29th ed. ("Chitty"), paragraph 26-063 and, for example, Anglia TV v. Reed [I972] 1 Q.B. 60.

180. The right to claim damages under English law is restricted by principles of causation, remoteness and mitigation of damage (all of which are closely related). To be noted with respect to each of these, in summary:

i) Causation: A claimant must show that the defendant's breach of contract was the effective or dominant cause of the loss: see Chitty paragraph 26-029. Was the loss caused by the breach? This is a commonsense, factual question: Galoo v. Bright Grahame Murray [I994] 1 W.L.R. 1360 at pp 1374-5.

ii) Remoteness: Damages are recoverable in respect of a type or kind of loss if, at the time of contracting, on the assumption that the parties actually foresaw the breach in question, it was within their reasonable contemplation as a not unlikely result of that breach: see Chitty paragraph 26-047. This is the result of the rule in Hadley v. Baxendale, as interpreted in the modern leading cases Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd [I949] 2 K.B. 528 and The "Heron II" [I969] 1 A.C. 350. Other losses are said to be "too remote" to be recoverable.

iii) Mitigation: A claimant is not entitled to recover damages in respect of loss that it should reasonably have avoided by taking reasonable steps: Chitty paragraph 26-092. No question of failure to mitigate arises in this arbitration. No allegations have been made that loss was caused by a failure to mitigate.

iii) Consequences of Breach of Contract - Overview of the Respective Claims

General Comments

181. As the Contract and breach are undisputed and admitted, Claimant should be entitled to compensation in respect of its reasonably foreseeable wasted expenditure, provided this wasted expenditure to Claimant is proven.

182. There is no term in the Contract that specifically deals with the consequences of rejection. There are however rights and obligations that arise with respect to such "rejected" goods.

. . . . . . . . .

Surveyors' fees

185. Claimant's claim for the surveyors' fees is a simple claim in debt. The claim is put in the alternative as a claim for damages for failure to pay. The Contract contained a promise by Respondent to pay the surveyors' fees. Claimant's claim is to enforce that contractual promise. No special rules of law arise. This claim is, in any event, admitted by Respondent as already noted above.

Freight, deadfreight and demurrage

186. Claimant's claims for freight, deadfreight and demurrage are claims for damages for breach of contract in respect of the Claimant's "reliance interest" in the performance of the Contract. The claims are for damages in respect of expenses and losses which Claimant incurred in reliance on Respondent's promise to perform the Contract and which are said to have been wasted as a result of Respondent's breach.

187. Claimant presents these claims as "wasted expenditure" claims. The claims are said to be the consequence of Claimant's obligations under the Contract, namely to charter in a vessel to lift the coal and a sub-sale to a third party, alleged to have been made in reliance on the Contract.

. . . . . . . . .

Counterclaim

189. Respondent complains that Claimant exercised a lien over the coal consignment which it says Claimant had no right to do and in doing so caused delays at [discharge port] which in turn caused loss and damage to Respondent (primarily with respect to its onward sale of the coal to [Y]).

190. Respondent relies on the authorities suggesting that in circumstances such as those apparent in this case, Claimant could have no lien on any dues such as fees, freight, deadfreight and demurrage.

191. Respondent argues that a term should be implied that the Parties must co-operate to ensure the performance of their bargain (i.e. a term that required Claimant to co-operate to enable Respondent to take delivery of the rejected coal) as well as a term that required Claimant to do nothing of its own motion to prevent Respondent from promptly taking delivery of the coal and dealing with it to mitigate loss.

192. Respondent relies on the following cases as demonstrating the application of implying terms requiring this co-operation: The Unique Mariner [1979] 1 Lloyd's Rep. 37, at page 51; The Energy Progress [1993] 1 Lloyd's Rep. 355, at page 359; Nissho Iwai v. Cargill [1993] 1 Lloyd's Rep. 80, at page 84; The Kallang [2007] 1 Lloyd's Rep. 160 at paragraphs 24, 26, 28 and 36.

193. A similar line of argument to that generally considered in these cases is used by Respondent with respect to its contentions that in endeavouring to exercise a lien, and in taking court actions, Claimant acted to interfere with rights and contractual relations and, in particular, Claimant's actions wrongfully interfered with the smooth delivery of the rejected coal.

194. Respondent also relies on an implied term argument with regards to the arbitration clause and submits it can be seen from The Kallang that a term can be implied into a contract that obliges Claimant not to bring about a state [of] affairs that renders or would have rendered the arbitration clause meaningless. If there is a breach of that term, one party can claim from the other any loss and damage suffered as a consequence. Respondent also relies on A v. B (No. 2) [2007] 1 Lloyd's Rep. Plus 20 at paragraphs 10 and 15 where it is stated that:

There can be no question but that the procedural consequence of conduct by a party to an arbitration or jurisdiction agreement which amounts to a breach of it and causes the opposite party reasonably to incur legal costs ought to be that the innocent party recovers by a costs order and/or by an award of damages the whole, and not merely part, of its reasonable legal costs.

The conduct of a party who deliberately ignores an arbitration or a jurisdiction clause so as to derive from its own breach of contract an unjustifiable procedural advantage is in substance acting in a manner which not only constitutes a breach of contract but which misuses the judicial facilities offered by the English courts or a foreign court. In the ordinary way it can therefore normally be characterised as so serious a departure from "the norm" as to require judicial discouragement by more stringent means than an order for costs on the standard basis.

195. This as well as the views of the authors of Arbitration Law by Merkin (extracted below) (1991 Edition, at paragraph 6.67.3) are relied on to support (among others) the damages claims made up of legal expenses and traveling expenses relating to the legal proceedings taken by Claimant.

If party B to an arbitration agreement commences judicial proceedings in some other jurisdiction in breach of that agreement, and those proceedings are successfully contested by party A, then party A may find that he has suffered loss in the form of the costs incurred by him in defending those proceedings, particularly in those jurisdictions which do not award costs to the successful party. In such a case, party A may have an action for damages for breach of the arbitration clause. This has been recognised in the case of exclusive jurisdiction clauses, by the Court of Appeal in Union Discount Co Ltd v. Zoller. In that case it was held that there was no general prohibition in English law on an award of damages for loss in the form of costs incurred in the earlier action and that, where the earlier action was one in a foreign court and party A had successfully contested the jurisdiction of the foreign court, there was no public policy or comity reason for refusing a remedy.

196. Although the authorities only deal with compensation in the form of costs, Respondent submits that the rule is not confined to costs only and can extend to other types of losses, if they can be shown to be foreseeable.

197. Article 17 of the Contract, which relates to liability, provides: "The liability of a party in respect of any claim brought by the other party based on failure of the first party to fulfil its obligations under this Agreement shall be limited in any event to liability for loss suffered by the party aggrieved, excluding loss of profit and anticipated profit and all indirect or consequential loss or damage to the party aggrieved."

198. Respondent argues that the terms of Article 17 make it clear that loss of profit and anticipated profit, and any consequential loss or damage to Claimant resulting from Respondent's breach, is excluded and should not be recovered.

3.3 Discussion of Live Issues

i) Demurrage at Discharge Port

199. Article 9 of the Contract makes Respondent liable for demurrage incurred if the vessel is unable to load upon her arrival and tendering NOR (Article 9.2). There is no corresponding article in the Contract with respect to discharge.

200. Respondent relies on the Contract to submit that Claimant has no right to claim for any demurrage incurred at the discharge port. Alternatively, Respondent states that demurrage incurred was due to delay which was not attributable to it and accordingly, it cannot be liable for discharge port demurrage.

201. Claimant addressed this issue by stating that the fact that the Contract does not make Respondent liable to pay demurrage incurred at the discharge port is irrelevant as Claimant's claim in this respect is for damages, not for a sum payable under the Contract. Claimant has submitted that in order to resist liability Respondent would need to put forward a positive case that its breach of contract did not cause Claimant's liability to pay demurrage incurred at . . . the discharge port.

202. Respondent does not deny that demurrage was incurred at the discharge port as alleged by Claimant. The matters in issue on this point are first, that demurrage at the discharge port is not payable under the Contract and secondly, that the incurring of the demurrage was not due to Respondent's breach of any other act of or attributable to Respondent.

203. As to the first, the fact that the Contract does not provide for the discharge port demurrage is not relevant. Claimant's claim is for damages, as the discharge port demurrage was incurred allegedly as a "wasted expense" arising as a result of the breach of contract. However, the approach "he who asserts must prove" means that Claimant must prove its entitlement.

204. This will only be a "wasted expense" in the relevant sense for damages if the fact it was incurred was caused by the breach of contract. Respondent argues it was caused by delay which was attributable to Claimant.

205. The Sole Arbitrator has considered the Parties' submissions and in particular, para. 58 of the SC [Statement of Claim] and paras 23-32 RS [Response Statement] and the evidence on file, and does not accept that the delay giving rise to discharge port demurrage was as a result of the breach of contract or that delay was attributable to Respondent. In particular, the Sole Arbitrator notes para. 31 d) of the Statement of Facts relating to the discharge of the coal (Exhibit C-5) which states that: "the legal notice sent by [Claimant] to Chairman, [discharge port] Trust has delayed the berthing of this vessel and we have no control in port decision to delay berthing because of legal notice by the charterers/[Claimant]". This, together with the matters exposed in the rest of the Statement of Facts and those outlined in para. 58 SC show that the delay had a number of possible causes (and indeed, was most likely a result of an accumulation of a number of incidents/events) and has not been proven as properly attributable to Respondent.

206. Accordingly, Respondent has no liability for discharge port demurrage.'