Profits remain profits even if given away

“Sir,” said Dr Johnson on one occasion, “there is no settling the point of precedency between a louse and a flea.” To some extent, Teare J’s decision in Glory Wealth Shipping PTE Ltd v Flame SA [2016] EWHC 293 (Comm) recalls this bon mot.

In the heady days of the bull shipping market, Glory Wealth entered into a series of contracts of affreightment with Flame. On the collapse of freight rates, Flame failed to provide the necessary cargoes. Glory Wealth sued. In previous proceedings, we got the answer to one nice contract question: namely, that if you sue for damages following anticipatory repudiation you do have to prove that you could have performed the contract if called on to do so. The background to the present proceedings was slightly different. The debacle referred to above had rendered Glory Wealth essentially insolvent. Seeing this coming and rightly realising that irate Glory Wealth creditors might just consider themselves entitled to seize any monies paid by Flame, the directors of Glory Wealth at an early state conceived a dubious, and possibly illegal, scheme to frustrate those creditors. They executed a document instructing Flame to pay any sums owing to Glory Wealth  to two other companies controlled by them for their own benefit instead.

In the present proceedings for damages against Flame by a pretty undeserving claimant, Flame raised a correspondingly unmeritorious defence. It took the point that because of this arrangement no loss had been suffered by Glory Wealth, since if the contracts had been performed Glory Wealth would not have received any profits anyway. Teare J smartly dismissed this plea. If one was entitled to receive monies, the fact that one might have directed them elsewhere was irrelevant: prospective profits remained an entitlement whatever the prospective profiteer might have done with them. And quite right too.

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