Transfield v Mercator - The "Achilleas"
Note: the Court of Appeal, in a
decision dated 6 September 2007, upheld the judgment of the Commercial
Court. To access the note on the Court of Appeal decision, click here
Dominic Kendrick QC (instructed by Swinnerton Moore) for the Claimant-Charterer
Simon Croall (instructed by Bentley Stokes & Lowless) for the Defendant-Shipowner
TIME CHARTERPARTY: LATE REDELIVERY: FAILURE TO DELIVER WITHIN LAYCAN OF NEXT FIXTURE: RENEGOTIATION OF HIRE RATE FOR NEXT FIXTURE IN ACCORDANCE WITH LOWER PREVAILING MARKET RATES: CONSEQUENTIAL LOSS OF HIRE: RECOVERABILITY OF DAMAGES: REMOTENESS OF LOSS
Where a time charterparty had no unusual provisions or features and a failure to redeliver the vessel in time for its next fixture led to a loss of profit over the period of the next fixture, being the difference between the original hire rate and the renegotiated lower market hire rate, the shipowner’s claim for damages against the redelivering charterer was not too remote, being a not unlikely result of late redelivery.
DMC Category Rating: Developed
Case Note contributed by Jim Leighton, BSc (Hons) (University of Plymouth), LLM (Maritime Law) (University of Southampton), Claims Consultant and International Contributor to DMC’s CaseNotes
The parties to the dispute were Transfield ("the charterer") and Mercator ("the shipowner"). The claim arose because the charterer was late in redelivering the vessel in accordance with the terms of its charterparty with the shipowner ("the Transfield charter"); specifically, a failure to comply with the redelivery dates given in the contractually required notices of redelivery.
The shipowner had already agreed a charterparty with Cargill ("the Cargill charter") which was to commence no later than 8 days after the vessel was expected to be redelivered at the latest on the basis of the redelivery notices given under the Transfield charter. As a result of the late redelivery, the vessel was unable to meet the cancelling date originally agreed in the Cargill charter. As a result, Mercator then had to renegotiate the delivery date with Cargill in return for which Cargill obtained a reduction in the rate of hire.
The shipowner claimed damages from the charterer at the rate of US$8,000 per day, being the difference between the US$39,500 per day rate originally agreed for the Cargill charter and the revised US$31,500 per day rate, against which the shipowner gave credit for the additional sums earned under the Transfield charter by reason of the late redelivery. The Cargill charter was for a period of about 4-6 months. The claim for hire lost over the period of time used within the Cargill charter amounted to US$1,364,584.37.
The parties agreed that the rates originally and subsequently negotiated under the Cargill charter were market rates. The charterer did not suggest that the Cargill charter was in any way unusual or peculiar in its terms or its period. Nor did the charterer suggest that the shipowner had allowed an unusually short gap between the date for redelivery under the Transfield charter and the cancelling date under the Cargill charter.
In the alternative the shipowner claimed damages of US$158,301.17 being the difference between the market rate of hire and the Transfield charter rate during the period from the expected latest date of redelivery in the notices until the actual date of redelivery.
The majority arbitrators (Mr David Farringdon and Mr Bruce Buchan) made an award in the shipowner’s favour, calculated on the former basis. The charterer contended that the award should have been calculated on the latter basis, which was the award that the minority arbitrator (Mr Christopher Moss) would have made.
The majority arbitrators had found on the facts that:
The judge noted that there were a number of statements from distinguished commercial judges that the prima facie measure of damages for late redelivery, under the first limb of Hadley v Baxendale,1 was the difference between the market and charterparty rates for "the overrun period" (i.e. the number of additional days by which the charterparty overran). The Court of Appeal in The "Gregos" also proceeded on an apparent acceptance that it was under the second limb of the rule that loss of a subsequent fixture was recoverable, if at all.
But in none of these cases, highlighted the judge, was the question of recoverability of loss of profit on a subsequent charter actually in issue. Nor were there any findings of fact such as those made by the majority arbitrators. Whilst these cases were authority for the proposition that, absent any such finding, the shipowner is entitled to recover the going market charterparty rate differential, they could not, held the judge, be regarded as deciding that, even with such a finding, recovery of loss of profit on a subsequent fixture could not arise under the first limb or could not be recovered at all.
The Rule in Hadley v Baxendale
The judge helpfully derived the following propositions from the speech of Lord Reid:
"(a) The mere fact that a type of loss is foreseeable is not, of itself, sufficient to make it recoverable; someone may foresee a result that is very remote.
(b) A claimant is, however, entitled to recover damages in respect of a foreseeable result which either (i) will happen in the great majority of cases; or (ii) in respect of which, on the facts known or available to the defendant, the chances of its happening are considerably less than evens but the occurrence of which would not be very unusual.
(c) But a plaintiff is not entitled to recover in respect of an occurrence which, although foreseeable as a substantial possibility will only happen in a small minority of cases and whose occurrence would therefore be very unusual."
The judge also pointed out the limitations of trying to compartmentalise claims within the first or second limb, particularly "as the distinction may not be important for practical purposes", for example, where the claimant will recover for the loss in any event.
The judge stated:
"In considering the first limb [of Hadley v Baxendale], the court is not constrained to look at what people with not even a minimum knowledge of the shipping trade would contemplate. The court is entitled to look at the ‘general… facts …., known to both parties’: per Lord Upjohn in The "Heron II" at page 424; and ‘such knowledge and information as (the contract breaker), as reasonable men (sic), experienced in its trade, should have had and should have brought to bear in its contemplation’: per Davies LJ in Hill v Ashington Piggeries  3 All ER 1496, at page 1524 D."
As a result, a major factor in determining whether a loss for the purposes of a contractual claim is too remote now appears to be whether any special, unusual, technical or peculiar information was actually known only to one party and could not reasonably be attributed to the knowledge of the other party at the time of entering the contract.
For an extreme example, knowledge of the need for a continuous pour of concrete in a large civil engineering project to avoid the condemnation of the whole civil structure was beyond the reasonable contemplation of an electricity supplier, where the inability to maintain a continuous pour arose from a power supply failure: Balfour Beatty Construction (Scotland) Ltd v Scottish Power plc (1994) Times, 23 March (HL).
Such losses, from a policy perspective, are considered too remote because had the special, unusual, technical or peculiar information reasonably been brought to the attention of the ignorant party it would have been in a position to appreciate its significance and the not unlikely consequences involved should a breach of contract later occur. That party could then either accept the unusual risks or negotiate terms in the contract to exclude, assign, apportion or limit the consequences.
Consequently, as the present case demonstrates, those in the same or similar industries and those having dealings with other industries as a matter of course (for example, shipowners as regards international commodity traders and vice versa) are much more likely to be deemed to have a wider shared knowledge of normal industry practices and market behaviour.
1. The damages a claimant may recover for breach of contract are "such as may fairly and reasonably be considered either (a) arising naturally i.e. according to the usual course of things from such breach of contract itself or (b) such as may reasonably be supposed to have been in the contemplation of the parties, at the time they made the contract as the probable result of it."
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