The Compensatory Principle: A Golden Victory for a New Certainty

Abstract

Commercial parties are entitled to know with certainty where they stand in contractual matters. This is especially the case for damages. The majority holding in Golden Strait Corporation v. Nippon Kubishika Kaisha (The Golden Victory) [2007] 2 AC 535 that events subsequent to breach can be taken into account in the assessment of damages has been subject to searing criticism that it impairs commercial certainty. Despite these criticisms, the Supreme Court in Bunge SA v. Nidera BV [2015] UKSC 43 unanimously reaffirmed the compensatory principle in that it is necessary to take into account events occurring after termination in assessing damages where those events might affect the loss actually suffered. Notably, Lord Sumption, delivering the leading judgment, rejected claims that the principle led to commercial uncertainty, stating that certainty should not justify an award of substantial damages to someone who has not suffered any. This in fact establishes a new type of commercial certainty: the compensatory principle will apply, regardless of the type of breach and can only be excluded by contract with very clear drafting. However, Lord Sumption’s clinical judgment also leaves unanswered how the principle is to be applied in certain situations, for instance, situations of post-termination inability to perform by the claimant as well as how to take into account post-termination events where assessment of damages occurs (unusually) before date of performance. In this note, we will review the consequences of the holding in Bunge, as well as how the applicability of the principle may need to be clarified.