MarIus

4.2 Jantzen’s approach has solid footing

Let us first create a context for the discussion by bringing attention to a classical situation known to raise questions of law concerning the calibration of the non-breach scenario: on what basis should we calculate damages, when one of the parties has a non-exercised right to choose the final quantum within a range? The optional range can be explicit, or implicit in language like circa. Let us first assume that the party at fault holds the option. Let this be a quarry that agrees to sell to a buyer 80–100 tons gravel, seller’s option. What amount of gravel does one calculate damages on when the quarry cancels? Three solutions have been proposed 1) the minimum value as most favourable to the option holder 2) the mean value in the range or 3) the most likely lawful quantum.^{(1) Iversen (2000), pp. 122–123.} There is consensus in case law and the literature that the first solution is correct.^{(2) Rt. 1913 p. 849. Rt. 1924 p. 91. Falkanger (1965), p 175 (see also note 13). Rodhe (1956), p. 481 note 3. Iversen (2000), p. 130. ND 1919 p. 88 NSC is often seen as an outlier in preferring the mean value. Its distinguishing feature seems to be that it did not consider the “circa” qualifier to have full normative bite, but viewed it as an evidentiary rule. The distinction thus lay in interpretation of contract.} The quarry only has to answer damages for 80 missing tons. The outcome seems just. The innocent party is, after all, not entitled to more than the minimum level of performance. Still, it is interesting to observe, that as no lawful choice was made by the party at fault, there is an inherent inexactness to the seller’s would-be lawful performance.

This feature is noticeable also when we let the innocent party hold the non-exercised option. Consider a sales agreement for 1000 tons steel +/- 10% buyer’s option, and that the seller unlawfully cancels the agreement prior to the final order. As the market for steel goes up, the buyer claims damages and would naturally want it measured on the high end of the range. Observe that the seller’s obligation in this contract is conditional – the exact amount of performance is a function of the other party’s choice – and the condition is irrevocably unknown. In that situation, it is not logically possible to define compliance in the specific. There is a space of normative inexactness. According to the consensus rule, the buyer does get the top of the range. But one could also defend a level based on what the buyer most likely would have opted for – that seems a sensible way to give effect to his right to choose, but it is a technically difficult rule and perhaps not as just. The point of all of this is to say that when the condition is unknown, there is at least a theoretical space for equitable arguments concerning the setup of the non-breach scenario.

The time charterer holds option rights concerning the duration of the charter within its lawful range.^{(3) Falkanger et al (2017), p. 512.} He chooses when to redeliver within the window of redelivery. The content of the obligation to notify ahead then becomes conditional on the exercise of this option. Before this condition is known, one cannot know the specifics of the required notice performance. When redelivery occurs, however, the condition cements itself into the course of contract between the parties. Pursuant to our construction of the clause, a short notice does not have the gravitas to pull on the lawfulness of the timing of the redelivery. The fact of the timing of the redelivery therefore does not constitute breach, and there is no legal basis to alter that parameter in the non-breach scenario. It was the charterer’s free choice. The specifics of the owner’s right to information must therefore be construed in relation to the redelivery that actually occurred.

Consequently, if redelivery on short notice occurs on 25 January and the charter demands 20 days’ notice, the owner’s right under the contract was to be given notice on 5 January, and this must be the perspective that applies to the measure of damages. If we assume as will be most common that the charter demands only 20 days’ approximate notice, a 20-day notice on 7 January would be sufficient when we accept that the qualifier permits a 10% margin of error. Since it is the charterer that is given leeway, we base damages on the option most favourable to him i.e., 7 January pursuant to the consensus rule.

Our conclusion is not swayed by the fact that once short notice has been issued, there is only one way for the charterer to comply with the notice obligation–by issuing new and proper notice and keeping the vessel on hire for redelivery to occur later. The charterer evidently cannot go back in time to issue proper notice. Indeed, if only the owner could refuse redelivery i.e., demand ‘specific performance’ of the notice obligation, there could be no other result than an extended period of charter hire.^{(4)Supra note 1.} As true as that statement is, it is merely descriptive. The owner is as we have ascertained not independently obliged to redeliver later; it just happens that extended employment is the only possible way to achieve compliance. It is precisely the real-world consequences of specific performance that explain why parties may at times only claim damages. When that is the case, as here, the owner may only claim losses caused by the breach itself, not losses caused by the choice to not rectify the breach. That there might be a differential economic effect between damages and would-be specific performance is a feature of the system.

The last point can be illustrated with an example from another area within the law of obligations. Consider a tenant who redelivers an apartment in a state of disrepair for which the tenant is liable. Consider that the owner either accepted redelivery, or that the law is such that the owner could not refuse redelivery. The owner may claim damages for the cost of repair and the loss of rent during the time allocated to such repair. Consider that the rent under the defaulted contract was much higher than the market rate at the time of redelivery. Will the owner be able to recover the higher rent of the contract during the time of repair since the only way in which the tenant could have complied with his obligations was to keep the apartment on hire and perform the reparations himself? The answer is quite clearly no. Loss of rent will have to be measured on market rates.^{(5) Wyller (2023) note 751: “Det kan også være leietap ved at ny utleie forsinkes…” (emphasis mine). English translation: “there may as well be loss of rent due to delay of new tenancies…”. Norsk Lovkommentar. Commentary to The Tenancy Act § 10-3.} If not, the owner is compensated for more than the breach itself.

A debitor is to be compensated, but not beyond his losses. These two sentences correspond with a positive and negative aspect of causality as a measurement criterion.^{(6) Simonsen (1997), p. 299.} There can be little doubt that the negative criterion is the more rigid of the two.^(7)Ibid. Were one to answer for more than losses caused by breach of a contractual norm, the measure of damages could be seen to interfere with the parties’ autonomy and freedom to contract.^{(8) Presuming the parties have not specifically agreed on a remedy departing from background principles. The parties may of course agree on e.g., standardized penalties that potentially exceed actual losses.} In contrast, the threshold is lower for interfering with the positive criterion. It is not always reasonable for the creditor to receive compensation in the full technical sense. The rules on mitigation and foreseeability operate to reduce the amount yielded by a pure causal assessment.^{(9) Occasionally, a creditor can keep an advantage caused by breach without offsetting it against his losses, for example if the advantage was not adequately caused by the breach. One could argue that this gives the creditor a ‘windfall’. But even in that case, the creditor cannot measure losses beyond that which is caused by breach. It is only a question of how to offset losses and advantages.} If there is some qualified culpability on the debitor’s hand, the creditor may stretch the foreseeability criterion, but he cannot claim more than his losses. To avoid overcompensation, it is necessary to align the measure of damages with the interpretation of the primary obligation. As such, there is little room for liberalism or flexibility in the setup of the causal inquiry beyond the flexibility that is embedded in the contractual norm itself. On that note, we concur with Jantzen.