Marine & Transit - April 2010

"Achilleas" revisited: damages for loss of sub charter

Sylvia Shipping Co Ltd v Progress Bulk Carriers Limited (The "Sylvia") - Commercial Court (Hamblen J) [2010] EWHC 542 (Comm)

This arbitration appeal to the Commercial Court provides a useful reminder of the possibly limited ramifications of the House of Lords decision in The “Achilleas” [2009] 1AC 61, following the initial hullaballoo caused by the judgment, in connection with the recoverability of damages for the loss of a charter party fixture.

It will be recalled that decision concerned a vessel under a time charter being redelivered nine days late, which resulted in owners losing a lucrative fixture albeit re-fixing with the same charterer at a much lower rate. Owners’ claim for damages for loss of fixture profits failed, and was instead limited to the traditionally understood measure of the difference between the charter and market rates for the period of overlap.

Two of the judgments (Lord Roger, Baroness Hale) followed the traditional Hadley v Baxendale reasoning i.e. that loss of a particularly lucrative fixture was too remote to be recoverable, not being a loss the parties would contemplate as likely to follow from the breach, whilst two Law Lords (Hoffman and Hope) applied a more novel, broader approach based upon the parties’ assumption of risk, which Lord Walker tacitly approved.      

The circumstances in The “Sylvia” were superficially similar, albeit with roles reversed and here charterers were claiming from owners damages for loss of fixture.

The vessel had been period time chartered by owners to Progress who, in turn, had sub chartered to Conagra for the carriage of the cargo of wheat from Quebec to Casablanca. However, port state control rejected the fitness of the vessel for loading.  The time taken to complete de-scaling and repairs meant that the sub charter laycan overran and Conagra cancelled. Progress managed to arrange a substitute charter but for a less favourable rate.

It was agreed that owners were in breach of their contractual maintenance obligations, and the question to be determined by the tribunal and the Commercial Court on appeal was the recoverability of charterers’ loss.

Predictably, owners contended that The “Achilleas” decision meant that Progress’s claim was limited to the difference between the charter and market rates during the 7 day period of delay.  However, the Court agreed with the tribunal’s assessment that Progress was entitled to damages based on the loss of the Conagra charter less receipts for the substitute fixture: a recoverable loss of about US$273,000.

In so deciding, Hamblen J.  made a number of observations:

• Owners’ argument that they had not “assumed the risk” of this type of loss (i.e. the novel “Achilleas” approach) was misconceived.

• The “Achilleas” was an amalgam of orthodox (Hadley v Baxendale) and broader approaches, but in the great majority of cases it was unnecessary to address the issue of assumption of responsibility. The House of Lords decision concerned unusual circumstances, a volatile market, and a background of market expectation of liability being restricted in specific late redelivery situations.
  
• Usually the fact that the type of loss arises in the ordinary course of things or out of special circumstances will carry with it the necessary assumption of responsibility. Therefore Hadley v Baxendale remained the standard rule which was to be applied in most cases.
  
• There was nothing unusual or extraordinary about this case. There was authority that loss of a sub charter was recoverable: The “Derby” [1984] 1 Lloyd’s Rep 635, and there was no market understanding to the contrary.
  
• Further the liability was not unquantifiable, uncontrollable or disproportionate. Owners would expect the vessel to be sub chartered, the period for which could never be for longer than the time charter itself. The loss was therefore within reasonable and fixed confines. As such, it was foreseeable, and therefore recoverable.

This case underlines the fact that The “Achilleas” dealt with a discrete issue and was a case very much on its own facts.  The traditional contractual approach to recoverability of contractual damages is therefore undisturbed. In this case, it was easily foreseeable that if the vessel was not fit to load upon presentation, that this could have adverse implications for any sub charter, and cancellation was an ordinary consequence of breach.