Class I Defence (FD&D)

Repudiatory breach by owners

An Assured charters a vessel for a trip charter. When the vessel tenders notice of readiness (NOR), the holds are found to be unclean and unfit to receive cargo. The Club advises the Assured to reject the NOR and call upon owners to clean the holds and make them free from rust. The Club appoints surveyors to represent the Assured and they report that, in order to make the holds cargo-worthy, it will be necessary to sand-blast them. Owners sail the vessel from the load port allegedly to conduct the cleaning. However, they later inform the Assured that, unless he agrees to accept and load the vessel with her holds "slightly better than when inspected", the vessel will sail away. The vessel fails to return to the load port and tender a valid NOR. The Assured eventually accepts the owners' conduct as repudiatory and treats the contract as discharged.

The Club advises the Assured about the importance of mitigating his losses, so the Assured charters in a substitute vessel at the best available rate in order to fulfil his sub-charter obligations and keep careful records in case he needs evidence that he acted reasonably in a future arbitration with the owners. In the end, the Assured calculates that he has suffered losses in the region of $500,000 as a direct result of owners' breach.

On behalf of the Assured, the Club appoints London solicitors to advise and arbitration proceedings are commenced against the owners. The solicitors advise that, whilst not all of the losses may be recoverable, the Assured has a good claim. The Club supports the Assured in his attempts to obtain security and, after the vessel is arrested in Philadelphia, a bank guarantee is obtained covering the claim plus interest and costs. At the same time, settlement discussions are in progress. Owners' settlement proposals are for a long time very low, presumably because they do not believe that the Assured is in a position to prove most of his losses, and pressure is put upon the Assured to provide evidence of his mitigation and the losses he suffered.

The Club supports the Assured as the arbitration progresses. Because the Assured has been careful with the preservation of supporting documentation, he is able to provide the requisite proof of his losses and of his steps in mitigation and thus owners come under increasing pressure as the arbitration hearing draws closer. Just before the arbitration hearing, owners make an improved offer and thereafter the Assured quickly recovers over 70% of his claim plus over 90% of his recoverable costs.