Transfield Shipping Inc of Panama v Mercator Shipping Inc of Monrovia; The Achilleas [2008] UKHL 48, [2008] All ER (D) 117 (Jul)
House of Lords
Lord Hoffmann, Lord Hope, LordRodger, Lord Walker and Baroness Hale
9 July 2008
Compensation for late redelivery of a vessel at the end of a charter-party, absent special circumstances, is limited to the difference between the charter rate and the market rate of hire for the period of the delay. Absent an assumption of responsibility by the charterers and the communication of special knowledge to them before the contract was entered into, they are responsible only for the market rate during the overrun period.
Simon Croall (instructed by Bentley Stokes & Lowless) for the owners.Dominic Kendrick QC (instructed by Swinnerton Moore LLP) for the charterers.
By a time charter of January 2003 the owners let their vessel to the charterers. By an addendum dated 12 September 2003, the parties fixed the vessel for a further five to seven months at a daily rate of $US16,750, with the latest day for redelivery being 2 May 2004. By April 2004, market rates had more than doubled compared with the previous September. On 20 April, the charterers gave notice of redelivery between 30 April and 2 May 2004. On the following day, the owners fixed the vessel for a new four to six month hire to another charterer, following on from the current charter, at a daily rate of $US39,500. The latest date for delivery to the new charterers, after which they were entitled to cancel, was 8 May 2004. With less than a fortnight of the charter to run, the charterers fixed the vessel under a subcharter to carry coals from China to discharge at two Japanese ports. No objection was made by the owners, and the vessel completed loading on 24 April. It discharged at the first Japanese port, but was delayed at the second and not redelivered to the owners until 11 May.
By 5 May it had become clear that the vessel would not be available to the new charterers before the cancelling date of 8 May. By that time, rates had fallen again. In return for an extension of the cancellation date to 11 May, the owners agreed to reduce the rate of hire for the new fixture to $US31,500 a day. The owners claimed damages for the loss of the difference between the original rate and the reduced rate over the period of the fixture, which came to $US1,364,584.37.
The charterers said that the owners were not entitled to damages calculated by reference to their dealings with the new charterers and that they were entitled only to the difference between the market rate and the charter rate for the nine days during which they were deprived of the use of the ship, which came to $US158,301.17.
The arbitrators, by a majority, found for the owners. They said that the loss on the new fixture fell within the first rule in Hadley v Baxendale (1854) 9 Exch 341 as arising “naturally, ie according to the usual course of things, from such breach of contract itself”. It fell within that rule because it was damage of a kind which the charterer, when he made the contract, ought to have realised was not unlikely to result from a breach of contract by delay in redelivery. Both the High Court and the Court of Appeal upheld the decision of the majority, and the charterers appealed to the House of Lords.
LORD RODGER:
The obligation of the charterers was to redeliver the vessel to the owners by midnight on 2 May. Therefore, the charterers were taken to have had in contemplation, at the time when they entered into the addendum, the loss which would generally happen in the ordinary course of things if the vessel were delivered some nine days late so that the owners missed the cancelling date for a follow-on fixture. Obviously, that would include loss suffered as a result of the owners not having been paid under the contract for the charterers’ use of the vessel for the period after midnight on 2 May. So, as both sides agreed, the owners had to be compensated for that loss by the payment of damages. But the parties would also have contemplated that, if the owners lost a fixture, they would then be in a position to enter the market for a substitute fixture.
Of course, in some cases, the available market rate would be lower and, in some cases, higher, than the rate under the lost fixture. But the parties would reasonably contemplate that, for the most part, the availability of the market would protect the owners if they lost a fixture. That was the thinking which lay behind the dicta to the effect that the appropriate measure of damages for late redelivery of a vessel was the difference between the charter rate and the market rate if the market rate was higher than the charter rate for the period between the final terminal date and redelivery: Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd (The Peonia) [1991] 1 Lloyd’s Rep 100, 108.
More particularly, that understanding of the general position lay behind the observations of Lord Mustill in Torvald Klaveness A/S v Arni Maritime Corpn (The Gregos) [1994] 4 All ER 998. In that case, Lord Mustill endorsed, en passant, what Bingham LJ had said in The Peonia.
The implication was that, ordinarily, the appropriate measure of damages would be that set out by Bingham LJ in The Peonia, since owners would be able to obtain substitute employment for their vessel.
Possible caveats existed which did not require examination in the instant case.
Ordinary consequence
Returning to the instant case, his lordship was satisfied that, when they entered into the addendum in September 2003, neither party would reasonably have contemplated that an overrun of nine days would “in the ordinary course of things” cause the owners the kind of loss for which they claimed damages. That loss was not the “ordinary consequence” of a breach of that kind. It occurred in the instant case only because of the extremely volatile market conditions which produced both the owners’ initial (particularly lucrative) transaction, with a third party, and the subsequent pressure on the owners to accept a lower rate for that fixture.
Back in September 2003, that loss could not have been reasonably foreseen as being likely to arise out of the delay in question. It was, accordingly, too remote to give rise to a claim for damages for breach of contract.
