Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd

The ordinary test for remoteness in contract remains whether the type of loss was within the parties’ reasonable contemplation when contracting as not unlikely to result from breach. An additional inquiry into assumption of responsibility is required only in unusual cases. Such cases may involve liability that is unquantifiable, unpredictable, uncontrollable or disproportionate, or clear evidence of a contrary market understanding.

During a time charter, an owner’s breach which delays the vessel and causes the loss of a reasonably expected sub-fixture may therefore make the owner liable for the resulting lost profit. That loss is materially different from loss on a follow-on charter after late redelivery, particularly where it is confined by the duration and trading purpose of the existing charter.

The owners appealed on a question of law arising from an arbitration award concerning the time charter of the vessel SYLVIA. The tribunal found that the owners had failed to exercise due diligence and breached their maintenance obligations. The resulting delay caused the charterers to miss the laycan for a sub-voyage charter, which was cancelled.

The tribunal awarded US$273,706.12, calculated by comparing the net revenue from the cancelled sub-charter with that earned under substitute employment. The owners relied on The Achilleas [2009] 1 AC 61 and argued that damages were limited to the difference between the charter and market rates during the delay.

The central issue was whether lost profit on the cancelled sub-fixture was too remote and whether the tribunal had been required to make a separate inquiry into the owners’ assumption of responsibility.

1. The owners’ appeal was dismissed. The tribunal had applied the correct contractual remoteness test and had been entitled to find that lost profit on the cancelled sub-fixture arose naturally in the ordinary course of things.

2. The orthodox rule derived from Hadley v Baxendale and The Heron II remains the standard rule. The relevant inquiry is whether the kind or type of loss was within the parties’ reasonable contemplation when contracting as not unlikely to result from breach. The Achilleas [2009] 1 AC 61 did not establish a new, generally applicable remoteness test.

3. The reasoning in The Achilleas combines the orthodox test with an assumption-of-responsibility inquiry. The latter is required only in unusual cases. Such cases are most likely to arise where the ordinary test may impose unquantifiable, unpredictable, uncontrollable or disproportionate liability, or where clear evidence shows that liability would contradict market understanding and expectations. Ordinarily, a loss arising naturally or from known special circumstances carries the necessary assumption of responsibility.

4. A time-chartered vessel is supplied so that the charterer may exploit its earning capacity. Ordinary trading frequently involves sub-letting and fixtures subject to laycan dates. An owner can therefore reasonably contemplate that a material delay in making the vessel available at the load port may cause the loss of a fixture and its associated profit.

5. The claim differed materially from The Achilleas. There was no finding of a market understanding limiting damages during the currency of a time charter to the difference between charter and market rates. A lost sub-charter could not exceed the period of the head charter and, where it concerned a specific voyage, remained within reasonable and fixed confines. The liability was therefore neither inherently disproportionate nor commercially unacceptable.

6. Remoteness is a mixed question of fact and law. Where arbitrators apply the correct test, the court may intervene only if no reasonable tribunal could have reached their conclusion on the facts found. That demanding threshold was not met.

• High Court (Commercial Court): The owners’ appeal on questions of law arising from the arbitration award was dismissed by [2010] EWHC 542 (Comm).
• Arbitration tribunal: By an award dated 28 April 2009, the tribunal held the owners liable for US$273,706.12 in damages associated with the loss of the charterers’ sub-fixture.