PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT / PREPARED IN ANTICIPATION OF LITIGATION
MEMORANDUM
February 20, 2024
FROM: Carlos Espinoza Calderwood & Harkness LLP One Liberty Plaza, 50th Floor New York, NY 10006
TO: Dr. Constance Albright Managing Director Clearwater Economics LLC 1001 Pennsylvania Avenue NW, Suite 700 Washington, DC 20004
RE: Factual Background and Scope of Damages Analysis Assignment — Northwind Maritime Corporation v. Thalassa Shipping & Logistics SA and Aegean Fortuna Shipholding Ltd., Index No. 655421/2023, Supreme Court of the State of New York, New York County, Commercial Division
C&H MATTER NO.: 1044-00006
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I. INTRODUCTION AND PURPOSE OF MEMORANDUM
Dear Dr. Albright:
As you are aware, Calderwood & Harkness LLP ("C&H" or the "Firm") represents Thalassa Shipping & Logistics SA ("Thalassa" or "TSL") and its wholly owned subsidiary, Aegean Fortuna Shipholding Ltd. ("Aegean Fortuna" or "AFSL"), in defending against a breach of charter-party claim brought by Northwind Maritime Corporation ("Northwind" or the "Plaintiff") in the Supreme Court of the State of New York, New York County, Commercial Division, Index No. 655421/2023. The case has been assigned to the Honorable Lorraine K. Chen, J.S.C., Part 49.
This memorandum is provided to you pursuant to the expert retention letter executed between Clearwater Economics LLC and Calderwood & Harkness LLP, dated February 15, 2024. The purpose of this memorandum is threefold: (1) to supply you with the factual background of the dispute in sufficient detail to orient your initial analysis; (2) to detail each of Northwind's claimed damages categories, which in the aggregate total $18,300,000; and (3) to define the scope of your damages analysis assignment on behalf of the defense.
You have been retained as a damages and economics expert on behalf of TSL and AFSL in this matter. Under the current scheduling order entered by Justice Chen on January 10, 2024, TSL's expert reports are due on or about August 5, 2024. Northwind's expert reports are due on or about August 19, 2024, and rebuttal reports from both sides are due September 9, 2024. We will keep you apprised of any modifications to this schedule.
For your reference, Dr. Henrik Sørensen of Nordic Maritime Consulting Group ApS, located in Copenhagen, Denmark, has been separately retained as a maritime engineering expert on behalf of TSL to address issues of vessel seaworthiness, maintenance history, and technical causation relating to the three mechanical incidents underlying Northwind's claims. A separate factual background memorandum was transmitted to Dr. Sørensen on February 5, 2024. As discussed in greater detail in Section X below, we anticipate that your work will intersect with Dr. Sørensen's on certain technical causation issues that bear on the allocation and quantification of damages, and we will coordinate that interface through our office.
All information contained in this memorandum is provided subject to the attorney work product doctrine and is confidential. Please treat this document and all related materials accordingly. If you have any questions regarding the proper handling of these materials, please do not hesitate to contact me directly.
II. THE PARTIES
A. Thalassa Shipping & Logistics SA (Defendant — Our Client)
Thalassa Shipping & Logistics SA is a Société Anonyme organized under the laws of the Hellenic Republic (Greece). The company is headquartered at 42 Akti Miaouli, Piraeus 185 38, Greece, which is the principal maritime commercial district of the Piraeus metropolitan area. For purposes of this litigation, TSL has designated Piraeus Global Agency Corp., located at 30 Broad Street, Suite 1410, New York, NY 10004, as its registered agent in the State of New York.
TSL's Chairman and Chief Executive Officer is Alexandros Stavridis, who founded the company in 2005 and has served in that capacity since its inception. The company's Chief Financial Officer is Elena Papadimitriou, who has held that position since 2017. TSL's General Counsel is Markos Theodorakis, who joined the company in 2014 after practicing maritime law in Athens for approximately fifteen years.
TSL is an international shipping, chartering, and maritime logistics company that operates a fleet of approximately 34 vessels, spanning dry bulk carriers, tankers, and container vessels. The company is a mid-market participant in the global shipping industry, with annual revenue for fiscal year 2022 of approximately $612 million and EBITDA of approximately $98 million. TSL's primary lender is Meridian Capital Bank AG, headquartered in Hamburg, Germany, which maintains a credit facility of $340 million secured by vessel mortgages across a substantial portion of TSL's fleet. TSL's financial statements are audited by Lysander & Associates, Chartered Accountants, based in Athens.
TSL maintains Protection & Indemnity ("P&I") coverage through the Oceanus Mutual Protection & Indemnity Club, domiciled in Bermuda, under Policy No. OCE-P&I-2020-TSL-0047. Hull & Machinery coverage for TSL's fleet, including the M/V Aegean Fortuna, is provided through Fortis Marine Underwriters Ltd., based in London, under Policy No. FMU-HM-2020-4892. Both policies were in force during the charter period at issue in this litigation and may be relevant to certain aspects of the damages analysis, particularly with respect to cargo claims and vessel repair costs.
B. Aegean Fortuna Shipholding Ltd. (Co-Defendant — TSL Subsidiary)
Aegean Fortuna Shipholding Ltd. is a wholly owned subsidiary of TSL, incorporated in the Republic of Liberia under Liberian Registration No. LR-C-20167845. As is customary in the international shipping industry, AFSL was established as a single-purpose entity to hold title to, and serve as the registered owner of, the M/V Aegean Fortuna. AFSL is named as a co-defendant in this action in its capacity as the vessel's registered owner, and all references herein to TSL should be understood to include AFSL unless the context otherwise requires.
C. Northwind Maritime Corporation (Plaintiff)
Northwind Maritime Corporation is a corporation incorporated under the laws of the Republic of the marshall Islands, bearing marshall Islands Entity No. MI-94827. Northwind maintains its principal office at 1700 Harbor Gateway, Suite 500, Stamford, Connecticut 06902. The company's President and Managing Director is Viktor Lindgren, its Chief Financial Officer is Sandra Chow, and its General Counsel is Richard Hartnett.
Northwind is engaged in commodity trading, shipping logistics, and bulk cargo operations on a global scale. For fiscal year 2022, Northwind reported annual revenue of approximately $1.2 billion, making it a significantly larger enterprise than TSL. Northwind's operations include both the chartering of vessels from third-party shipowners, such as TSL, and the sub-chartering of those vessels to downstream operators, a practice that figures prominently in several of its damages claims in this case.
In this litigation, Northwind is represented by Hargrove, Delacroix & Stern LLP, with offices at 600 Lexington Avenue, 28th Floor, New York, NY 10022. The lead partner on the matter is Margaret Delacroix, who is supported by senior associate Jason Trumbull and associate Priya Mehta. We expect that Hargrove Delacroix will retain its own damages expert, and early indications suggest that expert will be Dr. Rajesh Anand of Pinnacle Valuation Partners LLP, as discussed further in Section X below.
III. THE VESSEL — M/V *AEGEAN FORTUNA*
The vessel at the center of this dispute is the M/V Aegean Fortuna, a Supramax-class dry bulk carrier with the following characteristics:
The M/V Aegean Fortuna was approximately four years old at the commencement of the charter period and approximately six years old at the time of the incidents at issue. She is a relatively modern vessel of standard Supramax configuration, designed for the carriage of dry bulk cargoes including grains, coal, iron ore, and fertilizers. As a Supramax vessel, she is equipped with on-board cargo-handling gear (cranes), which allows her to load and discharge at ports without shore-based crane facilities. This feature is relevant to certain of Northwind's trading patterns during the charter period and to the assessment of substitute vessel availability.
Dr. Sørensen's separate memorandum addresses the vessel's technical specifications, maintenance history, and classification records in considerably greater detail. For purposes of your damages analysis, the foregoing summary should provide adequate context regarding the vessel's type, age, and commercial characteristics.
IV. THE CHARTER-PARTY
A. Key Terms
The charter-party at issue is a time charter in the NYPE 2015 (New York Produce Exchange Form), as amended by the parties (the "Charter-Party" or "CP"). The key commercial terms of the Charter-Party are as follows:
The Charter-Party was negotiated between the parties and executed on December 3, 2020. The daily hire rate of $14,750 per day was established during a period of rising but still moderate dry bulk freight rates, and it reflected the market conditions prevailing at the time for a Supramax vessel of the Aegean Fortuna's age, capacity, and trading profile. The vessel was delivered into Northwind's service on January 15, 2021, and the charter was to run for a full 36-month period ending January 14, 2024. The total value of the charter over its full term was approximately $16,166,000, calculated by multiplying the daily hire rate by the 1,096-day charter duration.
It is worth noting that by mid-2022, when the incidents underlying this dispute occurred, dry bulk freight rates had risen substantially due to global supply chain disruptions and elevated commodity demand. This market context is relevant to Northwind's substitute charter cost claims and will require careful analysis.
B. Key Provisions Relevant to Damages Analysis
Several provisions of the Charter-Party are directly relevant to your damages analysis. Full copies of the Charter-Party, including all addenda and riders, are enclosed as Enclosure 1. The following summary highlights the most salient provisions.
Clause 28 — Liquidated Damages. Clause 28 of the Charter-Party, which was negotiated as a bespoke addendum to the standard NYPE 2015 form, provides that upon the Owner's material breach of its maintenance and seaworthiness obligations under Clauses 2 and 6, the Charterer is entitled to liquidated damages calculated as follows:
Liquidated damages = 150% × (aggregate off-hire days attributable to the breach) × (daily hire rate)
Clause 28 further provides that the Owner's liability for liquidated damages is subject to a cap of $4,500,000 for any "single continuous period of breach." This language has emerged as a central interpretive dispute in the litigation.
TSL contends that the $4,500,000 cap applies once to the entire charter period — that is, the maximum aggregate liquidated damages exposure under Clause 28 is $4,500,000, regardless of how many separate incidents of breach may have occurred. Under TSL's reading, the phrase "single continuous period of breach" refers to the entirety of the Owner's ongoing maintenance and seaworthiness obligations throughout the charter, which constitute a single, continuous obligation.
Northwind, by contrast, contends that each separate incident of mechanical failure or maintenance deficiency constitutes a separate "period of breach," such that the $4,500,000 cap could theoretically apply independently to each of the three incidents, yielding a maximum theoretical exposure of $13,500,000. In practice, however, Northwind's total liquidated damages claim is $4,500,000 in the aggregate. The parties' competing interpretations of the cap provision nevertheless have significant implications for the overall damages framework, and this is a critical issue for your analysis.
This interpretive question is of the highest priority in your engagement. We ask that you provide an economic analysis of the liquidated damages provision, including whether the formula bears a reasonable relationship to anticipated or actual damages and the economic implications of each competing interpretation of the cap.
Clause 5 — Trade Limits. Clause 5 permits the M/V Aegean Fortuna to trade worldwide, subject to specific exclusions: OFAC-sanctioned ports and countries, ports or areas listed on the London Joint War Committee Hull War Risks Listed Areas (as updated from time to time), and ice-bound waters north of latitude 68°N. The trading limits are relevant to the assessment of Northwind's trading patterns, the availability of substitute vessels, and the reasonableness of certain route decisions during the charter period.
Clause 6 — Maintenance and Seaworthiness. Clause 6 obligates the Owner to maintain the vessel "in a thoroughly efficient state of hull, machinery, and equipment" throughout the charter period, including full compliance with all requirements of the vessel's classification society (GMCB) and all applicable international conventions. This is the primary substantive obligation alleged to have been breached by TSL, and it forms the basis of Northwind's core liability theory.
Clause 11 — Off-Hire. Clause 11 provides that the vessel shall be placed "off-hire" — meaning that the Charterer's obligation to pay daily hire is suspended — when the vessel is unable to perform charter service due to breakdown of machinery, deficiency of crew, grounding, detention by governmental authorities, or similar causes. The off-hire provisions are directly relevant to the calculation of off-hire deductions, which is the first category of Northwind's claimed damages. They are also relevant to TSL's counterclaim for unpaid hire, as Northwind contends that its withholding of hire during the fourth quarter of 2022 was justified under the off-hire provisions.
V. THE ALLEGED BREACHES — FACTUAL BACKGROUND
Northwind's complaint, filed on October 2, 2023, alleges that TSL breached the Charter-Party through three separate mechanical failures and one route deviation incident occurring during 2022. The following summary describes each incident and TSL's position with respect to each.
A. Incident 1: Turbocharger Failure (March 12 – April 2, 2022)
On or about March 12, 2022, the M/V Aegean Fortuna experienced a failure of the main engine turbocharger while transiting the Indian Ocean en route from Paradip, India, to Mombasa, Kenya. The turbocharger failure rendered the vessel unable to maintain the service speed required under the Charter-Party, and the Master diverted the vessel to Colombo, Sri Lanka, for emergency repairs. The vessel arrived in Colombo on approximately March 15, 2022, and repairs were completed on approximately April 2, 2022, at which point the vessel resumed its voyage.
Northwind contends that the vessel was off-hire for a total of 22 days during this incident, from March 12 through April 2, 2022, inclusive. TSL does not materially dispute the duration of the off-hire period, although there is some question as to whether the vessel's speed reduction prior to the Colombo diversion constituted a partial off-hire period or a full off-hire period.
TSL's position: The turbocharger failure was attributable to a latent defect in the turbocharger unit that was not detectable through the exercise of due diligence in the Owner's maintenance program. The turbocharger had been serviced in accordance with the manufacturer's recommended maintenance schedule and was within its expected operational lifespan. TSL contends that a latent defect of this nature does not constitute a breach of the Owner's maintenance obligations under Clause 6, and therefore no damages are attributable to this incident.
B. Incident 2: BWTS and Boiler Failure (July 8 – July 29, 2022)
On or about July 8, 2022, while the M/V Aegean Fortuna was loading iron ore cargo at Richards Bay, South Africa, the vessel experienced a malfunction of the ballast water treatment system ("BWTS") and a concurrent failure of the auxiliary boiler. The BWTS malfunction rendered the vessel unable to manage ballast operations in compliance with the International Maritime Organization's ballast water management requirements, and the boiler failure impaired the vessel's ability to maintain proper cargo hold conditions. As a result, loading operations were suspended, and the vessel was placed off-hire.
Repairs were completed on or about July 29, 2022, resulting in an off-hire period of 21 days. During this period, the iron ore cargo that had already been loaded into certain holds was exposed to moisture and environmental conditions that, Northwind alleges, caused oxidation damage. Northwind claims that the cargo damage resulted in losses of $3,420,000, which constitutes one of the larger individual components of its damages claim.
TSL's position: The BWTS malfunction was caused by contaminated ballast water that had been taken on at a prior port under the direction of Northwind's agents. Specifically, TSL contends that Northwind's port agent at the preceding port of call directed the vessel to ballast from a source that introduced sediment and biological contaminants into the BWTS filtration system, which caused the system to fail. If this is correct, then the BWTS failure was attributable to Northwind (or its agents), not to any deficiency in the Owner's maintenance. TSL further notes that the auxiliary boiler failure, while a separate mechanical issue, would not have resulted in significant off-hire time if the BWTS had been functioning properly, as the boiler could have been repaired within approximately five days rather than 21 days.
With respect to the cargo damage, TSL additionally contends that any cargo damage claims as between Owner and Charterer under a time charter are properly governed by the Inter-Club Agreement, which provides a framework for the allocation of cargo claims and may preclude or limit Northwind's recovery.
C. Incident 3: Cylinder Liner Failure (November 15 – December 10, 2022)
On or about November 15, 2022, the M/V Aegean Fortuna experienced a failure of the main engine cylinder liner, which required the vessel to proceed to the Keppel Verolme Shipyard in Rotterdam, the Netherlands, for drydocking and repair. The cylinder liner failure was a significant mechanical event that rendered the main engine inoperable and necessitated the vessel being towed for a portion of the transit to Rotterdam. Repairs, including drydocking, cylinder liner replacement, and associated inspections, were completed on or about December 10, 2022, resulting in an off-hire period of 25 days.
TSL's position: TSL concedes that the cylinder liner failure constituted a maintenance failure within the scope of the Owner's obligations under Clause 6 of the Charter-Party. However, TSL disputes the quantum of damages claimed by Northwind in connection with this incident. In particular, TSL contends that certain of the costs attributed by Northwind to this incident — including demurrage, port charges, and third-party shipper claims — are either unrelated to the cylinder liner failure, improperly calculated, or not recoverable as a matter of law.
D. Total Off-Hire Days
Across the three mechanical incidents described above, Northwind claims a total of 68 off-hire days:
E. Route Deviation — Maputo Call (September 2022)
In addition to the three mechanical failure incidents, Northwind alleges that TSL directed the M/V Aegean Fortuna to deviate from its agreed voyage from Durban, South Africa, to Qingdao, China, in order to load cargo at Maputo, Mozambique, for TSL's own account. Northwind contends that the Maputo deviation was not authorized under the Charter-Party, that it added approximately four days to the Durban-to-Qingdao voyage, and that the delay caused Northwind to miss a cargo laycan window at Qingdao scheduled for October 1–5, 2022.
Northwind claims that as a result of missing the Qingdao laycan, it incurred demurrage charges and dead freight costs totaling $1,230,000. This category of damages is separate from the off-hire-based claims associated with the three mechanical incidents.
TSL's position: The Maputo call was necessitated by prevailing weather conditions and routing considerations and was within the Master's reasonable discretion under the Charter-Party. TSL contends that the decision to call at Maputo did not constitute a deviation or breach, and that any delay in the vessel's arrival at Qingdao was attributable to weather-related factors that would have caused delay regardless of the Maputo call. TSL further contends that Northwind had the ability to reschedule or extend the laycan window at Qingdao and failed to do so, constituting a failure to mitigate damages.
VI. NORTHWIND'S CLAIMED DAMAGES — DETAILED BREAKDOWN
A. Summary Table
The following table summarizes Northwind's claimed damages across all nine categories, as set forth in its complaint and accompanying damages schedules:
Each of these categories is discussed in detail below, together with the specific issues that we ask you to address in your analysis.
B. Category-by-Category Analysis
1. Off-Hire Deductions ($1,003,000). Northwind claims entitlement to deduct hire for all 68 off-hire days across the three mechanical incidents, calculated as follows:
68 days × $14,750/day = $1,003,000 (rounded)
This calculation is arithmetically straightforward, and the daily hire rate is not in dispute. The primary disputes relating to this category concern (a) whether all 68 days properly qualify as off-hire days under Clause 11 of the Charter-Party, and (b) whether Northwind is entitled to deduct hire for the off-hire periods associated with Incidents 1 and 2, given TSL's defenses on causation and liability for those incidents. These are primarily legal and factual questions, but we ask you to assess the arithmetic accuracy of Northwind's calculation and to identify any periods within the claimed 68 days that may not properly qualify as full off-hire days (e.g., partial off-hire during speed reduction prior to the Colombo diversion in Incident 1).
2. Liquidated Damages Under Clause 28 ($4,500,000). Northwind claims liquidated damages under Clause 28 of the Charter-Party. The basic formula under Clause 28 yields the following:
68 off-hire days × $14,750/day × 150% = $1,504,500
This amount ($1,504,500) is the mechanically calculated result of the liquidated damages formula as applied to the 68 claimed off-hire days. However, Northwind does not claim $1,504,500 in liquidated damages. Instead, Northwind claims $4,500,000 — the full amount of the contractual cap — asserting that the cap operates as a per-incident cap rather than a single charter-period cap.
Under Northwind's interpretation, each of the three incidents constitutes a separate "single continuous period of breach," entitling Northwind to a cap of $4,500,000 per incident (for a theoretical maximum of $13,500,000). In its damages schedules, however, Northwind has agreed that its effective total liquidated damages claim is $4,500,000 in the aggregate. The practical significance of Northwind's interpretation is that it allows Northwind to claim the full $4,500,000 cap even though the formula calculation yields only $1,504,500. Under TSL's interpretation, the cap is a single cap for the entire charter period, and the liquidated damages would be limited to the lesser of $1,504,500 (the formula result) and $4,500,000 (the cap) — i.e., $1,504,500.
This is a critical issue for your analysis. We ask you to provide an economic analysis that addresses the following:
(a) Whether the liquidated damages formula (150% × off-hire days × daily rate) bears a reasonable relationship to the anticipated or actual damages that the Charterer would suffer as a result of off-hire events caused by maintenance failures, evaluated at the time the Charter-Party was executed (December 2020) and in light of prevailing market conditions;
(b) The economic implications of interpreting the $4,500,000 cap as a single charter-period cap versus a per-incident cap, including an analysis of the damages outcomes under each interpretation;
(c) Whether the liquidated damages clause, if interpreted as Northwind proposes (i.e., with the cap applying per-incident), would function as an unenforceable penalty under the economic principles applicable to liquidated damages analysis, particularly where the formula calculation ($1,504,500) is less than one-third of the claimed cap amount ($4,500,000).
3. Substitute Charter Costs ($471,600). Northwind alleges that during the periods when the M/V Aegean Fortuna was off-hire, it was forced to charter substitute vessels to fulfill its cargo commitments. Northwind claims that it incurred substitute charter costs for a total of 72 days — notably, four more days than the 68 off-hire days claimed for the M/V Aegean Fortuna. Northwind explains the discrepancy by reference to the mobilization time required to position substitute vessels and overlapping charter periods.
The substitute charter rate claimed by Northwind is $21,300 per day, which Northwind asserts was the prevailing market rate for comparable Supramax tonnage during the relevant periods in 2022. The claimed damages are calculated as follows:
Substitute rate premium: $21,300 − $14,750 = $6,550/day
Total substitute charter costs: $6,550 × 72 days = $471,600
Issues for your analysis:
(a) Whether Northwind has adequately documented the substitute charters, including the identity of the substitute vessels, the terms of the substitute charter agreements, and the actual payments made;
(b) Whether the substitute charter rate of $21,300/day was commercially reasonable and reflective of prevailing market conditions for comparable Supramax tonnage during the relevant periods;
(c) Whether Northwind could have obtained substitute tonnage at a lower rate through the exercise of reasonable diligence;
(d) Whether the 72-day period (as opposed to 68 days) is justified by the evidence;
(e) Whether there is potential double-counting between the off-hire deductions (Category 1) and the substitute charter costs. Specifically, if Northwind recovers the full daily hire rate as an off-hire deduction for 68 days, and separately recovers the rate premium ($6,550/day) as a substitute charter cost, the combined recovery for the off-hire periods would be $14,750 + $6,550 = $21,300 per day — effectively recovering the full substitute charter rate while also retaining the benefit of the off-hire deduction. We ask you to analyze whether this constitutes impermissible double recovery.
4. Cargo Damage Claims — Iron Ore Oxidation, Incident 2 ($3,420,000). Northwind claims $3,420,000 for damage to iron ore cargo that was being loaded at Richards Bay, South Africa, at the time of the BWTS and boiler failure on July 8, 2022. Northwind alleges that the 21-day delay during which the vessel was off-hire resulted in the iron ore cargo in the partially loaded holds being exposed to environmental conditions — principally moisture and atmospheric humidity — that caused oxidation, reducing the cargo's quality and commercial value upon discharge.
TSL's defenses to this claim include the following:
(a) As discussed in Section V.B above, TSL contends that Incident 2 was caused by contaminated ballast water introduced under the direction of Northwind's agents, making Northwind (or its agents) the proximate cause of the failure and the resulting cargo damage;
(b) TSL contends that cargo damage claims as between Owner and Charterer under a time charter are governed by the Inter-Club Agreement (the Inter-Club New York Produce Exchange Agreement, as amended), which establishes a framework for the apportionment and resolution of cargo claims. TSL's position is that the Inter-Club Agreement either bars Northwind's claim or limits its recovery.
Issues for your analysis:
(a) Evaluate the quantum methodology used by Northwind to calculate the $3,420,000 claim. Specifically, determine whether the claimed amount reflects the actual diminution in the market value of the cargo at the time and place of discharge, or whether Northwind has used an alternative methodology (e.g., replacement cost, contract price differential, or buyer-imposed penalty);
(b) Review the cargo documentation, including bills of lading, cargo inspection and survey reports, cargo quality certificates at loading and discharge, and any claims made by or against Northwind's buyers;
(c) Assess whether the oxidation damage was consistent with the environmental exposure during the 21-day delay period, or whether pre-existing cargo quality issues or inadequate hatch-cover maintenance may have contributed to the damage;
(d) Determine whether Northwind has been compensated for any portion of the cargo damage through insurance, cargo claims against third parties, or other recovery mechanisms, and whether any such recoveries should offset the claimed damages.
5. Demurrage and Dead Freight — Qingdao Laycan Miss ($1,230,000). Northwind claims $1,230,000 in demurrage charges and dead freight costs arising from the alleged Maputo deviation in September 2022, which Northwind contends caused it to miss the cargo laycan window at Qingdao scheduled for October 1–5, 2022. According to Northwind, the four-day delay caused by the Maputo call resulted in the vessel arriving at Qingdao after the laycan had expired, causing Northwind's cargo commitment to be canceled and exposing Northwind to demurrage and dead freight liabilities.
Issues for your analysis:
(a) Verify the calculation of the claimed demurrage charges, including the applicable demurrage rate, the number of demurrage days claimed, and the contractual basis for the demurrage obligation;
(b) Verify the calculation of the claimed dead freight, including the quantity of cargo that Northwind was committed to load, the freight rate applicable to that cargo, and the methodology for calculating the dead freight loss;
(c) Assess whether Northwind could have rescheduled the Qingdao laycan window, extended the laycan dates by agreement with the cargo interest, or otherwise avoided or mitigated the loss. This is a significant mitigation issue: if the laycan could have been extended by even two or three days, the claimed loss may have been entirely avoidable;
(d) Evaluate the causal link between the alleged four-day Maputo deviation and the missed laycan. In particular, determine whether other factors — including the vessel's speed, weather conditions, and port congestion at Qingdao — contributed to the vessel's late arrival, independent of the Maputo call.
6. Additional Port Costs and Bunker Surcharges ($875,400). Northwind claims $875,400 in additional port costs and bunker surcharges allegedly incurred as a result of unscheduled port calls for emergency repairs (Colombo for Incident 1, Richards Bay for Incident 2, and Rotterdam for Incident 3) and the Maputo deviation. These costs are claimed to include port entry and departure fees, pilotage, towage, berthing charges, anchorage fees, agency fees, and additional bunker (fuel) costs attributable to deviation and delay.
Issues for your analysis:
(a) Review the supporting documentation for the claimed port costs and bunker surcharges, including port disbursement accounts, bunker delivery receipts, and vessel operating cost records;
(b) Assess whether these costs are properly attributable to the alleged breaches or whether some or all of the costs would have been incurred in any event in the normal course of the vessel's operations;
(c) Determine whether the claimed amounts are duplicative of other damages categories. For example, if the off-hire deductions (Category 1) are intended to compensate the Charterer for the loss of the vessel's services during the repair periods, then additional port costs incurred during those same periods may represent double recovery. Similarly, if the substitute charter costs (Category 3) already incorporate the substitute vessel's port costs, then separate recovery of port costs for the M/V Aegean Fortuna during the off-hire periods may be duplicative.
7. Loss of Sub-Charter Profit ($166,600). Northwind sub-chartered the M/V Aegean Fortuna to Eastbourne Bulk Carriers Ltd. ("Eastbourne") at a daily rate of $17,200 per day. The sub-charter was on terms that, in relevant part, mirrored the head charter between Northwind and TSL, meaning that when the M/V Aegean Fortuna was off-hire under the head charter, Northwind would also be unable to perform under the sub-charter and would lose the sub-charter hire.
Northwind's lost profit calculation is as follows:
Sub-charter rate: $17,200/day Head charter rate: $14,750/day Daily profit margin: $17,200 − $14,750 = $2,450/day Off-hire days: 68 Lost sub-charter profit: $2,450 × 68 = $166,600
Issues for your analysis:
(a) Obtain and review the Eastbourne sub-charter agreement to verify the sub-charter rate of $17,200/day and the terms governing off-hire and cancellation. We have served document requests on Northwind for the production of this agreement (see Section X.C below), but it has not yet been produced as of the date of this memorandum;
(b) Confirm whether the sub-charter was in fact in effect during all three off-hire periods and whether Northwind actually lost the sub-charter profit for all 68 days;
(c) Assess whether the lost sub-charter profit claim is duplicative with other heads of damage. In particular, if Northwind recovers off-hire deductions (Category 1), which represent a refund of the $14,750/day hire that Northwind paid to TSL, and separately recovers the $2,450/day sub-charter profit margin, then Northwind's total recovery for the off-hire periods would include both the hire refund and the lost profit — a combined recovery of $17,200/day, which is the full sub-charter rate. We ask you to analyze whether this constitutes an impermissible double recovery, particularly in conjunction with the substitute charter costs (Category 3).
8. Third-Party Shipper Claims ($5,634,400). Northwind claims $5,634,400 in damages arising from claims made against Northwind by three separate third-party shippers whose cargo was delayed, damaged, or undelivered as a result of the alleged breaches. Northwind contends that these third-party claims represent consequential damages flowing from TSL's breach of the Charter-Party and that Northwind is entitled to recover these amounts from TSL.
The three third-party claims, as identified in Northwind's complaint and damages schedules, are as follows:
TSL's defenses to these claims:
(a) TSL contends that third-party shipper claims are not recoverable as damages in a breach of charter-party action. Count III of Northwind's complaint, which pleads the third-party shipper claims as an element of breach of contract damages, was the subject of TSL's motion to dismiss filed on December 15, 2023. In her Decision and Order dated March 8, 2024, Justice Chen narrowed Count III but did not dismiss it entirely, holding that third-party shipper claims may be recoverable as consequential damages to the extent they are foreseeable and proven. Justice Chen did dismiss Count V (unjust enrichment) in its entirety;
(b) TSL also contends that Northwind has not demonstrated that it has actually paid or settled these third-party claims. If the claims remain contingent or disputed, Northwind may not have standing to recover them as damages in this action until they are reduced to judgment or settled.
Issues for your analysis:
(a) Evaluate the evidentiary basis and quantum of each of the three third-party claims, including the underlying contracts, correspondence, invoices, and any settlement documentation;
(b) Assess whether Northwind has actually paid or settled these claims, or whether they remain contingent. If they remain contingent, analyze the appropriate methodology for valuing contingent claims in a damages assessment;
(c) Determine whether the claimed amounts bear a reasonable relationship to the actual losses suffered by the third-party shippers, or whether the amounts reflect inflated or speculative claims;
(d) Assess the foreseeability of these claims at the time the Charter-Party was executed, which is relevant to the legal question of whether consequential damages of this nature are recoverable.
9. Legal Fees and Expert Costs ($999,000). Northwind includes $999,000 in legal fees and expert costs as an element of its claimed damages. This amount is stated to represent the fees Northwind has incurred or expects to incur in prosecuting this action.
TSL's position: Legal fees are not recoverable as damages in a breach of contract action under New York law, pursuant to the American Rule. The Charter-Party does not contain a fee-shifting provision, and no exception to the American Rule applies here.
Issue for your analysis: The recoverability of legal fees is primarily a legal question that will be addressed by C&H in our briefing. However, in the event the Court determines that legal fees are recoverable in whole or in part, we ask that you be prepared to address the quantum of the claimed fees, including whether the amounts claimed are reasonable and adequately documented.
C. Total Claimed Damages
As summarized in the table in Section VI.A above, Northwind's total claimed damages across all nine categories amount to $18,300,000. This figure represents Northwind's maximum demand in this litigation and will form the baseline against which your independent assessment of actual provable damages will be measured.
VII. THALASSA'S COUNTERCLAIM AND OFFSET
On November 17, 2023, in conjunction with its Verified Answer, TSL filed a counterclaim against Northwind for $1,620,000 in unpaid hire. The counterclaim arises from Northwind's unilateral withholding of hire payments during the period from October 1 through December 31, 2022 — a span of approximately 110 days.
The calculation of the withheld hire is as follows:
$14,750/day × 110 days = $1,622,500 (rounded to $1,620,000 in the pleading)
Northwind contends that its withholding of hire during this period was proper under two theories: (a) that the vessel was off-hire under Clause 11 during portions of this period (specifically, the 25 off-hire days associated with Incident 3, the cylinder liner failure, from November 15 through December 10, 2022); and (b) that Northwind was entitled to withhold hire as an equitable setoff against its damages claims. TSL disputes both theories. With respect to the off-hire theory, TSL acknowledges that hire was not payable during the 25 days of Incident 3 but contends that the remaining 85 days of withheld hire (October 1 through November 14 and December 11 through December 31, 2022) were not justified by any off-hire event. With respect to the equitable setoff theory, TSL contends that the preconditions for equitable setoff were not met.
Relevance to your analysis: We ask that you account for TSL's $1,620,000 counterclaim in any net damages assessment. In particular, we ask that you assess whether Northwind's purported off-hire setoff against hire was properly calculated — i.e., whether the amount of hire withheld by Northwind corresponds to the off-hire days to which Northwind was actually entitled, or whether Northwind withheld amounts in excess of its off-hire entitlement.
VIII. THALASSA'S DEFENSES RELEVANT TO DAMAGES
For context in your damages analysis, the following is a summary of TSL's principal legal and factual defenses that bear on the quantification and allocation of damages. While many of these defenses involve questions of law and fact that will be resolved by the Court, they are relevant to your work because they affect the range of scenarios under which damages would be calculated.
1. Clause 28 Cap Interpretation. TSL contends that the $4,500,000 liquidated damages cap under Clause 28 applies once to the entire charter period, not per-incident. If TSL's interpretation prevails, the maximum liquidated damages exposure is $4,500,000, and the formula calculation of $1,504,500 controls because it is less than the cap.
2. Incident 1 — Latent Defect. TSL contends that the turbocharger failure in Incident 1 was caused by a latent defect, and that no damages are attributable to this incident because the Owner exercised due diligence in maintaining the turbocharger.
3. Incident 2 — Causation by Northwind's Agents. TSL contends that the BWTS and boiler failure in Incident 2 was caused by contaminated ballast water introduced under the direction of Northwind's port agent. If this defense prevails, no damages are attributable to Incident 2, or alternatively, damages should be apportioned between the parties based on their respective contributions to the failure.
4. Maputo Deviation — Master's Discretion. TSL contends that the Maputo call was within the Master's reasonable discretion and was necessitated by weather and routing conditions, and therefore did not constitute a deviation or breach. If this defense prevails, the demurrage and dead freight claim of $1,230,000 is eliminated.
5. Cargo Damage Claims — Inter-Club Agreement. TSL contends that cargo damage claims as between Owner and Charterer are governed by the Inter-Club Agreement, which may bar or limit Northwind's $3,420,000 cargo damage claim.
6. Third-Party Shipper Claims — Not Recoverable. TSL contends that the $5,634,400 in third-party shipper claims is not recoverable as breach of charter-party damages. Count III was narrowed by Justice Chen's March 8, 2024 ruling, and Count V (unjust enrichment) was dismissed entirely.
7. Failure to Mitigate. TSL contends that Northwind failed to mitigate its damages in several respects, and this is a critical area for your analysis. Specifically, we ask you to examine the following mitigation issues:
(a) Whether Northwind took reasonable steps to secure substitute charters at reasonable rates, or whether Northwind overpaid for substitute tonnage or failed to search the market adequately;
(b) Whether Northwind could have rescheduled the Qingdao laycan window for October 1–5, 2022, or extended the laycan dates by agreement with the cargo interest, thereby avoiding or reducing the demurrage and dead freight losses;
(c) Whether Northwind's delay in addressing the BWTS contamination issue — specifically, whether Northwind's agents failed to take timely remedial action upon discovering the BWTS malfunction at Richards Bay — compounded the losses from Incident 2, including the cargo damage and the duration of the off-hire period.
IX. PROCEDURAL HISTORY RELEVANT TO DR. ALBRIGHT'S ASSIGNMENT
The following is a summary of the key procedural events in this litigation to date and the upcoming deadlines relevant to your assignment:
The depositions of Viktor Lindgren and Sandra Chow are of particular relevance to the damages analysis, as they are Northwind's key witnesses on the calculation and documentation of damages. Transcripts and exhibits from these depositions will be forwarded to you promptly upon completion. In addition, the deposition of Alexandros Stavridis, TSL's Chairman and CEO, is scheduled for April 22, 2024; while this deposition will focus primarily on liability issues, it may also address TSL's counterclaim and the circumstances of the Maputo call.
Discovery in this matter remains ongoing, with the discovery period running through August 2024. Additional documents and information relevant to your analysis will be transmitted to you on a rolling basis as they are produced or become available.
X. SCOPE OF DR. ALBRIGHT'S ASSIGNMENT
A. Primary Tasks
Based on the foregoing factual background, your assignment encompasses the following primary tasks:
1. Evaluate Northwind's Damages Methodology. Review and critically analyze the methodology, calculations, and supporting documentation for each of Northwind's nine damages categories, which total $18,300,000 in the aggregate. For each category, assess whether Northwind's methodology is economically sound, whether the calculations are arithmetically accurate, and whether the underlying assumptions are supported by the available evidence. Where the methodology is deficient, identify the specific deficiencies and their impact on the claimed damages amount.
2. Assess the Clause 28 Liquidated Damages Formula and Cap. Provide an economic analysis of the liquidated damages provision under Clause 28, including the following sub-issues:
(a) Whether the liquidated damages formula (150% × off-hire days × daily hire rate) bears a reasonable relationship to the anticipated or actual damages that the Charterer would suffer as a result of off-hire events caused by maintenance failures. This analysis should consider the market conditions prevailing at the time the Charter-Party was executed in December 2020, the parties' reasonable expectations regarding dry bulk freight rates and vessel utilization, and the relationship between the formula result and the Charterer's actual economic losses;
(b) The proper application of the $4,500,000 cap, with a specific analysis of the economic implications of interpreting the cap as a single charter-period cap (TSL's position) versus a per-incident cap (Northwind's position). This should include a quantitative comparison of the damages outcomes under each interpretation and an assessment of which interpretation produces results more consistent with the compensatory purpose of liquidated damages;
(c) Whether the liquidated damages clause, if interpreted as Northwind proposes (with the cap applying per-incident, thereby allowing Northwind to claim $4,500,000 when the formula yields only $1,504,500), would function as an unenforceable penalty under the economic principles applicable to liquidated damages analysis. In particular, address whether the gap between the formula result and the claimed cap amount suggests that the cap is being used as a punitive mechanism rather than a reasonable pre-estimate of damages.
3. Calculate TSL's Realistic Damages Exposure. Prepare an independent assessment of Northwind's actual provable damages under each category, assuming for the purpose of the analysis that liability is established. This assessment should provide a range of exposure (low, midpoint, and high) reflecting the reasonable range of damages that could be supported by the evidence under different assumptions and scenarios. This independent calculation will serve as the foundation for your expert opinion on the proper measure of damages.
4. Identify Double-Counting and Overlap. Analyze whether Northwind's nine damages categories contain elements of duplication or overlap that would result in double recovery if all categories were awarded in full. Particular attention should be given to the following potential areas of overlap:
(a) Off-hire deductions (Category 1) and substitute charter costs (Category 3): as discussed in Section VI.B.3, the combined recovery of full hire refunds and substitute charter rate premiums could result in Northwind recovering the full substitute charter rate while also retaining the benefit of the off-hire deduction;
(b) Off-hire deductions (Category 1) and lost sub-charter profit (Category 7): as discussed in Section VI.B.7, the combined recovery of hire refunds and lost sub-charter profit could result in Northwind recovering the full sub-charter rate ($17,200/day);
(c) Additional port costs and bunker surcharges (Category 6) and other categories that may already incorporate port-related costs;
(d) Any other instances of overlap or duplication that you identify in the course of your analysis.
5. Mitigation Analysis. Evaluate whether Northwind took reasonable steps to mitigate its losses in connection with each of the alleged breaches. This analysis should address, at a minimum, the following issues:
(a) The reasonableness of the substitute charter rates obtained by Northwind, including whether comparable tonnage was available at lower rates and whether Northwind conducted a commercially reasonable search of the market;
(b) The timing of substitute charter procurement — i.e., whether Northwind acted promptly to secure substitute tonnage upon learning of each off-hire event, or whether delays in procurement extended the period of loss;
(c) Whether Northwind could have rescheduled the Qingdao laycan for October 1–5, 2022, or extended the laycan dates by agreement with the cargo interest, thereby avoiding or reducing the $1,230,000 demurrage and dead freight claim;
(d) Whether Northwind's agents took timely and adequate steps to address the BWTS contamination issue during Incident 2, or whether Northwind's delay in responding to the malfunction contributed to the duration of the off-hire period and the extent of the cargo damage.
6. Counterclaim Offset. Incorporate TSL's $1,620,000 counterclaim for withheld hire into your net damages analysis. Assess whether Northwind's purported off-hire setoff against hire during the October–December 2022 period was properly calculated, and quantify the appropriate offset against any damages that may be awarded to Northwind.
7. Third-Party Shipper Claims. With respect to the $5,634,400 in third-party shipper claims (Category 8), evaluate whether these claims have been actually paid by Northwind or remain contingent and unresolved. Assess the quantum methodology for each of the three claims (Pacific Horizon Trading Co. — $2,150,000; Sahel Minerals SARL — $1,984,400; Consolidated Grain Export Ltd. — $1,500,000), and determine whether the claimed amounts are supported by the underlying documentation.
B. Deliverables. Your engagement contemplates the following deliverables:
1. Expert Report. A comprehensive expert report suitable for service on opposing counsel by August 5, 2024, setting forth your opinions, analysis, and conclusions regarding the damages issues described above. The report should comply with all applicable requirements of the CPLR for expert disclosures and should be prepared with the expectation that it will be reviewed and scrutinized by opposing counsel and the Court.
2. Rebuttal Report. A rebuttal report responding to the expert report of Northwind's damages expert, who is expected to be Dr. Rajesh Anand of Pinnacle Valuation Partners LLP, located at 399 Park Avenue, Suite 2200, New York, NY 10022. The rebuttal report is due by September 9, 2024. We will transmit Dr. Anand's report to you promptly upon its service on or about August 19, 2024.
3. Deposition and Trial Preparation. Preparation for your deposition by opposing counsel, which is expected to occur in September or October 2024, and preparation for potential trial testimony, with the trial currently anticipated for early 2025, subject to the Court's calendar.
4. Ongoing Consultation. Availability for consultation with the C&H litigation team throughout the engagement, including attendance at team meetings (in person or by videoconference), review of incoming document productions and deposition transcripts, and ad hoc analysis of damages-related issues as they arise during the course of discovery and motion practice.
C. Materials to Be Provided
The following materials are either enclosed with this memorandum or will be provided to you as they become available during the course of the engagement:
1. The Charter-Party (NYPE 2015 form, as amended), Reference No. NW-TSL-CP-2020-1203, dated December 3, 2020 — enclosed as Enclosure 1;
2. Northwind's Verified Complaint, filed October 2, 2023, with all exhibits — enclosed as Enclosure 2;
3. TSL's Verified Answer and Counterclaim, filed November 17, 2023 — enclosed as Enclosure 3;
4. Justice Chen's Decision and Order on TSL's Motion to Dismiss Counts III and V, dated March 8, 2024 — enclosed as Enclosure 4;
5. Northwind's damages schedules and supporting documentation, as attached to the Complaint — enclosed as Enclosure 5; additional damages documentation to be produced during discovery will be forwarded as received;
6. Preliminary document production index (documents produced to date) — enclosed as Enclosure 6;
7. TSL's First Set of Interrogatories and First Request for Production to Northwind, served January 22, 2024 — enclosed as Enclosure 7;
8. Deposition transcripts as they become available, including the depositions of Alexandros Stavridis (TSL Chairman/CEO, scheduled April 22, 2024), Viktor Lindgren (Northwind President, scheduled May 30, 2024), Sandra Chow (Northwind CFO, scheduled June 14, 2024), and other witnesses as scheduled;
9. Maintenance and repair records for the M/V Aegean Fortuna, covering the charter period and relevant prior periods — to be provided from TSL's records;
10. Voyage logs and port records for the M/V Aegean Fortuna for the charter period (January 15, 2021 – January 14, 2024) — to be provided from TSL's records;
11. The Eastbourne Bulk Carriers Ltd. sub-charter agreement — subject to production by Northwind; C&H has served document requests and interrogatories on January 22, 2024, and will transmit this document upon receipt;
12. Substitute charter contracts and invoices — subject to production by Northwind;
13. Cargo damage documentation, including bills of lading, cargo survey reports, cargo quality certificates, and cargo claims correspondence — subject to production by Northwind and third parties;
14. TSL's financial records related to hire payments, the counterclaim, and the withheld hire during October–December 2022 — to be provided from TSL's records;
15. Dr. Sørensen's maritime engineering expert report — to be provided when available; expected completion June–July 2024; and