Transfield Shipping Inc of Panama v Mercator Shipping Inc of Monrovia (The "Achilleas")

Damages for late redelivery of a time-chartered vessel are governed by the general principles of remoteness. The conventional market-rate difference for the overrun period is a prima facie measure, not an exclusive rule. Where experienced charterers know that a follow-on fixture is highly probable, loss of that fixture may be recoverable under the ordinary course limb of Hadley v Baxendale, without specific notice of the fixture. The claim remains subject to causation, mitigation and the possibility that unusual or extravagant contractual features make the loss too remote. Market volatility and the size of the loss do not, by themselves, prevent recovery.

The owners claimed damages after the charterers redelivered the vessel eight days late. The delay caused the owners to renegotiate a follow-on charter at a lower rate, producing an agreed loss of $1,364,584.37, alternatively the parties’ agreed overrun-period damages of $158,301.17.

A majority of the arbitrators awarded the larger sum. The minority arbitrator preferred the conventional overrun measure. Christopher Clarke J upheld the majority award in the Commercial Court under [2006] EWHC 3030 (Comm). The charterers appealed. The central issue was whether loss of the follow-on fixture was too remote, or whether damages were confined to the market-rate difference during the period of late redelivery.

The appeal was dismissed unanimously. The majority arbitrators and Christopher Clarke J were entitled to award the agreed loss-of-fixture damages.

1. Remoteness. The rule in Hadley v Baxendale is better understood as one principle applied according to the defendant’s knowledge at the time of contracting. Loss is recoverable where a reasonable person in the defendant’s position would have regarded that kind of loss as a likely or not unlikely result of breach. Knowledge may arise from the ordinary course of business or from communicated special circumstances. The principles in Victoria Laundry, The Heron II and The Pegase were consistent with that approach.
2. Late redelivery. The authorities concerning the market-rate difference for the overrun period did not decide whether loss of a subsequent fixture was recoverable. No fixed or binding rule confined such damages to the overrun period. The conventional measure remained available, but was only prima facie.
3. Application. The charterers were experienced participants in the shipping market. They knew that owners would probably arrange a new fixture close to redelivery, and that market rates could change rapidly. Subject to unusual features, loss of that fixture caused by late redelivery was a type of loss that was not unlikely and fell within the ordinary course limb.
4. Causation and limits. Res inter alios acta concerned causation and mitigation, not remoteness. The owners’ fixture was arranged in ordinary anticipation of due redelivery and was renegotiated reasonably after breach. There was no causation issue. An unusually narrow laycan, an above-market rate, or an extravagant or unusual fixture might produce a different result. Market volatility and the amount of the loss did not do so here.
5. Further matters. The court expressed no concluded view on special issues concerning illegitimate last voyages. The parties could address any commercial uncertainty by contractual provisions.

• Court of Appeal (Civil Division): The appeal was dismissed and the majority arbitration award was upheld under [2007] EWCA Civ 901 .
• Queen’s Bench Division (Commercial Court): Christopher Clarke J upheld the majority arbitrators’ award under [2006] EWHC 3030 (Comm) .
• Arbitration: The majority arbitrators awarded the owners $1,364,584.37. The minority arbitrator favoured the overrun-period measure.