XCoal Energy v. Classic Maritime – SMA No. 4450, 16 August 2022

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A December 2, 2019 contract of affreightment between XCoal Energy and Classic Maritime stated XCoal was to provide cargos for 6 – 7 vessels during the year 2020. Due to the Covid-19 pandemic, XCoal was only able to provide cargo for two vessels. Classic believed they should have been awarded damages of over US$ 4 million for the breach, however, XCoal asserted they owed far less, claiming Classic did not meet the burden of proof to warrant this higher claim.  

Classic claimed the total shortage of coal they were provided, according to the Overall Volume Clause, was 880,000 tons, which could have earned them a gross revenue of US $6.9 million. Factoring in expenses for the vessels and voyages, Classic determined their total lost profits were between $4.4 million for five voyages and $4.2 million for four voyages.

XCoal counterclaimed that Classic had not met their burden of proof for these claims and that their calculations were based on speculation rather than past dealings. They also claimed that since no reasonable alternative was provided for the $4+ million, the Panel should have disregarded the claim entirely.

The Arbitrators considered the following issues:

  • Was there merit to Classic’s claim or was XCoal correct that no damages were due?
  • Were Classic’s $4M calculations valid, assuming Xcoal would have nominated four or five cargoes for a total of 880,000 tons?
  • What was the exact date the breach of contract occurred?
  • How should interest, attorney, and arbitration fees be allocated among the parties?

    Merits of the Claim

    The Panel decided in this case, where there was a multi-voyage COA and no named vessel, the owner did not have the duty to mitigate its damages citing “The wrongful termination of such a [COA] exposes the owner to a loss which cannot be avoided by the performance of another contract since, at least in theory, the owner had the ability to perform both contracts at the same time.” J. Cooke, et al., Voyage Charters, P7A.33 (4th ed. 2014); see also PP7A.34 – 36 and P21A.35.

    Were the Calculations Overstated?

    The Panel also rejected XCoal’s counterclaim that no damages were due since there was no alternative to the $4 million provided in Classic’s claim. The arbitrators stated it was reasonable for Classic to put forward their “best case” since both parties had already authorized the Panel to determine a reasonable price for the damages.

    In addition, the Panel rejected Classic’s calculation of the $4 million claim citing 1) Classic did not meet its burden of proof that XCoal would have nominated five (or four) cargos at the very end of the year, and 2) It was not stated precisely in the COA that XCoal had to meet the 880,000-ton maximum of the Overall Volume Clause. The Panel concluded four more cargo nominations would have covered the minimum cargo requirements stated in the clause and calculated 786,920 tons based on previous voyages and the overall volume clause.

    Timing of the Breach

    Finally, the Panel examined what exact date the breach of contract occurred.  After great debate, the exact date was determined to be irrelevant since the issue at hand was a contract with more than one voyage remaining to be performed. Instead, the arbitrators decided the damages awarded should be calculated based on the average rates over the period when the remaining voyages might have been performed, rather than based on the rate of a single date of the breach.

    Calculating Damages

    Using the two completed voyages for guidance, the Panel calculated the damages due assuming only four more voyages would have been completed and using the average rates throughout the year 2020. This resulted in the total damages for the four unperformed voyages being $2.1 million. 

    Furthermore, the Panel awarded Classic $35,000 in attorney’s fees and ruled the arbitration costs would be equally split by the two parties. Although SMA rule 30 stated all fees would be awarded to the prevailing party, no provision in the COA incorporated SMA rules. Therefore, under the American Rule, both parties were to bear their own fees and costs.

    Final Award

    Classic was awarded $2,120,350 in damages, $141,163 in interest, and $35,000 towards attorney’s fees and costs.  The cost of arbitration would be split equally between the two parties.