UK: Commercial Court Provides Further Guidance on Remoteness of Damage in Breach of Charterparty Cases

Sylvia Shipping Co Limited v Progress Bulk Carriers Limited [2010] EWHC] 542 (Comm) (The Sylvia)

This recent decision of Mr Justice Hamblen in the Commercial Court provides further useful guidance on the measure of recoverable damages in breach of charterparty cases. The House of Lords decision in The Achilleas in 2008 resulted in much debate and discussion on remoteness of damage and whether a new test of "assumption of responsibility" for a particular type of loss had been introduced by at least a majority of their Lordships. In the Amer Energy [2009] 1 Lloyds Rep 293, Mr Justice Flaux did not consider that any new test as to recoverability of damages in contract and remoteness different to the classic rule in Hadley v Baxendale (as refined in subsequent cases) had been laid down. Mr Justice Hamblen in this case takes a similar view and indicates that the orthodox approach to remoteness of damage remains the "standard rule" and that it is only in relatively unusual cases such as The Achilleas itself where a consideration of assumption of responsibility may be required.

Background

The dispute between the parties in this case was originally dealt with by arbitration, where the arbitrators held that the owners had failed to exercise due diligence and had breached their maintenance obligations under a time charter leading to a delay in readiness of the vessel to load cargo. The resulting delay led to charterers missing the laycan for a sub-fixture which was subsequently cancelled by the sub-charterers. The charterers re-fixed the vessel but the new sub-charter was less profitable and charterers claimed the resulting loss of profit from the owners. The arbitral tribunal found that the loss of profit under the sub-charter was recoverable. The owners appealed to the court, relying inter alia on the House of Lords decision in The Achilleas to argue that the appropriate measure of recoverable damages was limited to the difference between the market and charter rates during the period of delay.

The Achilleas related to the late redelivery of a time chartered vessel following a legitimate final voyage. The follow on charter was lost as a result and owners were forced to renegotiate a substantially reduced rate of hire with the new charterers. They sought to claim damages for the difference between the original and re-negotiated rates of hire for the entire duration of the follow on charter, which was for 4-6 months. The House of Lords however held that the owners' damages were limited to the difference between the market rate of hire and the rate of hire agreed in the contract which was breached and only for the period during which owners were deprived of the vessel by late delivery. However, their Lordships differed in the approaches they took to remoteness of damage and this divergence of opinion has given rise to some uncertainty as to the applicable test.

Commercial Court decision

Mr Justice Hamblen considered the relevant case-law on remoteness of damage, starting with the classic statement of the rules regarding remoteness as laid down in Hadley v Baxendale and as refined in subsequent decisions such as the House of Lords decision in The Heron II. He stated that the generally accepted test for remoteness "has been whether the loss claimed was of a kind or type which it would have been within the reasonable contemplation of the parties at the time that the contract was made as being not unlikely to result". He added, however, that the House of Lords decision in The Achilleas "has called into question whether that remains a sufficient test".

Having reviewed The Achilleas, Mr Justice Hamblen concluded that it "results in an amalgam of the orthodox and the broader approach. The orthodox approach remains the general test of remoteness applicable in the great majority of cases. However, there may be "unusual" cases, such as The Achilleas itself, in which the context, surrounding circumstances or general understanding in the relevant market make it necessary specifically to consider whether there has been an assumption of responsibility. This is most likely to be in those relatively rare cases where the application of the general test leads or may lead to an unquantifiable, unpredictable, uncontrollable or disproportionate liability or where there is clear evidence that such a liability would be contrary to market understanding and expectations."

He added that this conclusion was consistent with other recent cases, for example Classic Maritime v Lion Diversified Holdings [2010] 1 Lloyd's Rep 59, where the judge stated that he would be "highly surprised" if The Achilleas had established a new test for the recoverability of damages for breach of contract.

Mr Justice Hamblen distinguished The Achilleas from the present case. Whereas a lost follow on fixture made at the end of a charter could be for any period, a lost sub-charter could never be for a longer period than the time charter itself. It was less likely, therefore, that an "unquantifiable, unpredictable, uncontrollable or disproportionate" loss would arise in the latter case. Furthermore, there was no finding of a general market understanding that damages arising from delay during the period of a time charterparty were limited to the difference between charter and market rates during the period of delay. On the contrary, the judge said, the general understanding is that a lost voyage fixture is a well recognised measure of damages in charterparty cases.

As regards the tribunal's findings in this case, the judge found nothing surprising in the arbitrators' conclusion that the loss of a fixture during the course of a charterparty due to delay in meeting a laycan caused by the owners' breach of charterparty was foreseeable and was a loss of the kind arising naturally and in the ordinary course of things. Vessels were chartered in order to be traded and trading would frequently involve sub-letting (in fact, time charters would normally include an express liberty to do so). Simple ordinary vessel trading often involved fixtures for the carriage of specific cargo, usually by voyage charter or by a time charter trip and the lifting of these cargoes almost invariably involved a laycan or a cancelling date. In the judge's opinion, therefore, "one would expect it to be well within the reasonable contemplation of an owner that delay of significance in arriving or being ready to load at the designated load port may result in the loss of a fixture, as the Tribunal found. If so, lost profit on such a fixture would equally be well within their reasonable contemplation."

Furthermore, in The Derby [1984] 1 Lloyd's Rep 635, it was clearly recognised that a claim for lost profits on a voyage charter which could not be performed because of delay due to owners' breach of a time charterparty could properly be made, so long as the loss could be proven.

Consequently, the owners' appeal was dismissed and leave to appeal was also refused.

Comment

In our February 2009 e-brief, we reported on the decision in The Amer Energy and commented that that decision suggested there was no new test for remoteness of damage as a result of The Achilleas and that if that was correct, The Achilleas might be limited to its own (special) facts. The decision in the present case would appear to bear out that view and as such, may be welcomed as reducing uncertainty in this area.

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