Transfield Shipping Inc of Panama v Mercator Shipping Inc of Monrovia

The remoteness rule in Hadley v Baxendale is a composite principle, not two mutually exclusive rules. Loss is recoverable where, viewed with the knowledge reasonably available to the contract breaker, it was a not unlikely consequence of the breach. In a shipping context, loss caused by late redelivery and the consequent adjustment of a subsequent fixture may therefore be recoverable, even where an available market exists and the loss does not occur in most cases. The precise amount of loss need not have been foreseeable. An additional requirement that the contract breaker expressly assumed responsibility for the loss is unnecessary where the type of loss was sufficiently within the parties’ contemplation.

The owners chartered the vessel Achilleas to the charterers under a time charterparty. The charterers redelivered the vessel nine days late. Before the late redelivery, the owners had fixed a subsequent charter with Cargill. Cargill agreed to extend its cancelling date but reduced the daily hire rate, causing the owners substantial loss over the subsequent fixture.

A majority arbitration award allowed recovery of the loss on the subsequent fixture. The charterers appealed under section 69 of the Arbitration Act 1996, contending that damages were confined to the market-rate and charterparty-rate difference during the overrun period. The central issue was whether the subsequent fixture loss was too remote.

1. Appeal dismissed. The majority arbitrators had not erred in law in awarding the owners US $1,364,584.37 for the loss caused by the reduced rate under the subsequent Cargill charter.
2. The rule in Hadley v Baxendale is a composite whole. The two limbs are not mutually exclusive categories requiring different tests. The question is whether the loss was a sufficiently likely, or not unlikely, consequence of the breach in light of the knowledge reasonably available when the contract was made.
3. Following The Heron II, foreseeability alone is insufficient. A loss which is foreseeable only as a substantial possibility occurring in a small minority of cases, and would be very unusual, remains too remote. Conversely, a result need not occur in the majority of cases if it is not very unusual and the parties, viewed in their commercial context, would reasonably have contemplated it.
4. Late redelivery of a vessel may naturally cause the vessel to miss the cancelling date of a subsequent fixture and require the owner to accept a lower rate. On the findings, that type of loss was a recognised and accepted hazard in the shipping market and was not very unusual. The fact that the loss was greater than anticipated did not make it too remote.
5. The charterers did not need specific notice of the Cargill fixture, nor did the owners need to prove an express or implied contractual assumption of responsibility. Where experienced commercial parties would have realised that the type of loss was a not unlikely consequence of breach, the contract breaker is taken to have accepted responsibility for it.
6. The existence of an available market does not impose an inflexible rule confining recovery to the market-rate and charterparty-rate differential during the overrun. That measure is a prima facie working assumption, particularly where the claimant could obtain substitute performance. It does not exclude recovery of the claimant’s true loss where the claimant could not substitute the very vessel required for the subsequent fixture.
7. The court accepted the relevance by analogy of Bence Graphics International Ltd v Fasson U.K. Ltd: practical difficulty in calculating the loss is not a reason to apply a different measure which fails to reflect the claimant’s true loss. The appeal was dismissed.

The judgment records an appeal under section 69 of the Arbitration Act 1996 against a majority arbitration award dated 17 May 2006. The Commercial Court dismissed the appeal.