Zhoushan Zhongchang Shipping Co. v. The “Otello Manship” et al.

In Admiralty Practice, In Rem Actions and Arrest on (Updated )

This was an application to set bail. The underlying action was for breach of contract for the sale and delivery of a bulk carrier. By the contract of sale the Defendant was required to deliver the vessel in China by 20 January 2004 which was later extended to 12 February 2004. The Defendants did not deliver the vessel as required but tendered a one day notice of delivery on 28 April 2004. The vessel was not delivered within the one day time period and the contract was repudiated on 7 May 2004. The vessel was later arrested in Vancouver at which time the parties apparently again entered into discussions for the sale of the vessel at that time. Those discussions were not successful. The main issue in the application was whether the amount of bail should be reduced by the Plaintiff’s failure to mitigate its loss. Specifically, the Defendant argued that the Plaintiff should have accepted a sale and delivery of the vessel at Vancouver which would reduce the Plaintiff’s damages to a loss of use claim. At first instance, the Prothonotary accepted that mitigation was a special circumstance that should be taken into account when setting bail at a Plaintiff’s reasonably arguable best case. However, on the conflicting and incomplete evidence before him the Prothonotary considered it was not advisable to moderate the bail based on the alleged failure to mitigate. Accordingly, bail was set at the difference between the agreed purchase price and the value of the vessel on the last date the vessel was to have been delivered plus costs of $300,000 and interest for one year at 6%. On appeal, the appeal Judge held that the obligation on a Plaintiff to mitigate its loss and accept a lesser security was not applicable in the circumstances given the conduct of the Defendant. The appeal Judge confirmed the order of the Prothonotary and dismissed the appeal.