Claimant, a Portuguese shipowner, invited tenders for the repair of one of its vessels according to specifications circulated with its invitation to bid. The work was entrusted to Respondent, a Turkish shipbuilder and repairer. Expecting the contract to be performed on time, Claimant chartered the ship for subsequent use in connection with a construction project. The repair works were not completed on time. Claimant terminated the contract and made arrangements for an expert survey to determine what work remained to be done. Respondent refused to cooperate and Claimant's attempts to compel the return of the ship proved fruitless. Claimant was obliged to hire another ship to fulfil its obligations under the charter party it had concluded for subsequent use of the ship.

'42. Claimant's case is that Respondent has failed to repair and refurbish [ship 1] in accordance with the requirements of the contract, or at all, and/or has failed to do so within the agreed time frame . . . Claimant further contends that Respondent has failed to deliver the barge in [city], contrary to its instructions . . . Claimant says that Respondent is in breach of contract in both these respects, and it is clearly right in both respects. It is difficult, if not impossible, to imagine what possible defences might be run in answer to these facts even if Respondent had participated in the arbitration.

43. In these circumstances, Claimant is entitled to damages which proximately arise from Respondent's breach. Claimant's principal claim is for damages based on the cost of hiring [ship 2] as a substitute vessel which was necessitated by reason of Respondent's failure to deliver [ship 1] at the agreed time. The evidence submitted by [the chairman of Claimant] establishes that Claimant paid [sum of money] . . . in order to charter [ship 2] for the purpose of meeting Claimant's contractual commitment to provide [services] in the [construction project]. As previously noted, the [ship 1] and [ship 2] were reasonably comparable in terms of their capability, although [ship 2] was somewhat more modern and better equipped. However, the market for vessels of this type is extremely limited and [Claimant] really had no practical choice but to charter [ship 2] if it wished to fulfil its contractual commitments. The Tribunal concludes that Claimant is entitled to recover as damages the amount that it paid to charter [ship 2], that amount being [sum of money]. Such damages were the direct result of Respondent's contractual breach.

44. The majority has reviewed the dissenting opinion of [arbitrator] but respectfully believes that his dissent has incorrectly characterized the legal basis underlying the award. The dissenting opinion starts with the premise that the Tribunal intended to award Claimant a lost profits measure of damages for breach and then concludes that damages are not recoverable because Article 21.06 of the General Terms and Conditions of the Order excludes damages to either party based on loss of profits. In fact the award is not based on any attempt to calculate or to award lost profits but rather on the cost of hiring a substitute vessel, an expense incurred by Claimant which the majority has found to have been a separate direct and foreseeable consequence of Respondent's breach and thus not subject to the terms of Article 21.06. While [the dissenting arbitrator] accurately quotes from that portion of Claimant's submissions which sought lost profit damages, the majority did not base its award on these submissions. Rather it responded to a claim specifically put in paragraph 8 of Claimant's closing submissions as one for damages, i.e., the additional costs which Claimant was forced to incur in chartering a substitute vessel. Moreover, it seems to the majority that the decision cited in the dissent, BHP Petroleum Ltd. v. British Steel Plc [1999] 2 Lloyd's Rep. 583, directly supports the majority's position. In that case a similarly worded contractual provision in a pipeline construction contract expressly excluded damages "for loss of production" and for "loss of profits". One of the elements of damage sought by the plaintiff was the cost of replacing the pipeline, a damage claim directly analogous to the claim for hiring a substitute vessel in the present case. Rejecting the assertion that such damages were contractually excluded lost profits, the judge upheld the claim stating that the cost of replacing the pipeline "is certainly not indirect or consequential, nor is it loss of production, profits or business" (p. 600). Following the Court's reasoning in the present case, the cost of hiring the substitute vessel (like the cost of replacing the pipeline in the BHP case) cannot be characterized either as consequential or as loss of profit. Hence the damage exclusions contained in Article 21.06 for loss of profits or consequential damages are inapplicable in the present circumstances. In sum, the BHP Petroleum case fully supports and confirms the legal analysis of the majority in construing the Contract in this arbitration.

45. It may be argued (although it has not been suggested) that to avoid double recovery, the amount of Claimant's damages should be reduced to the extent of any costs saved because [ship 1] was not utilized on the [construction project]. However, the Tribunal concludes that existence and amount of any such cost savings in the present circumstances are far from certain, while at the same time it is clear that Claimant has incurred significant ongoing costs in connection with its attempts to secure possession of the wrongfully withheld vessel. In evaluating the adequacy of Claimant's damage recovery, it is particularly pertinent to recognize that, while in the ordinary case, after the breach the Claimant would expect to have its ship returned as an income producing chattel, here Claimant is still being deprived of the profitable use of [ship 1] for what is now approaching two years. For all of those reasons, and in the interest of adequately compensating Claimant for the effects of Respondent's wrongful conduct, the Tribunal concludes that it is appropriate that Claimant be awarded as damages the full cost of chartering [ship 2] without further deduction.

46. As previously noted, Claimant originally sought compensation of [sum of money] under clause 7.2 of the Contract as liquidated damages. At the hearing . . ., the Tribunal discussed with Claimant's counsel the fact that clause 7.2 was expressly characterized as a "penalty" and not as "liquidated damages" and that quite clearly the amount of the penalty did not bear a reasonable relationship to the amount of damages that would be recoverable for breach of the Contract. Under well-established principles of English law a liquidated damage clause is unenforceable unless it meets those requirements. Claimant thereafter in its Revised Closing Submission withdrew its request for damages under clause 7.2. The Tribunal is of the view that clause 7.2 cannot under English law be regarded for any purpose (including as a ceiling on recoverable damages) as a valid and enforceable damage clause and therefore Claimant's withdrawal was appropriate. It is also noted that the Contract expressly provides that the liquidated damage provision is without prejudice to any other rights Claimant may have under the Contract and therefore does not limit Claimant's ability to recover for contractual breach.

47. As previously noted . . ., Claimant had originally sought an indemnity for the cost of completing the repairs to the vessel over and above the Contract price based on a hypothetical scenario involving the towage of the vessel to a port in Italy where the remaining repair work would be carried out. The Tribunal had indicated that unless Claimant could present evidence to substantiate its indemnity claim, it was disposed to resolve this dispute by issuance of a final award that did not involve declaratory relief. Although Claimant was subsequently granted an opportunity to present additional evidence, it did not do so. The Tribunal accordingly finds that Claimant's indemnity claim rests solely on unsupported assertion and speculation, and should therefore be dismissed.

48. The Tribunal therefore determines that the extent of the damages Claimant is entitled to recover is [sum of money]. In addition to damages, Claimant is also entitled to an order declaring the Contract to have been validly terminated by Claimant as a result of Respondent's material breach and requiring Respondent to deliver up the vessel to Claimant immediately.'