Transcript The Achilleas

The Achilleas – remoteness of damage
Presentation to Sjørettsforeningen
and Young CMI
Clare Calnan
Wednesday 18 April 2012
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OUTLINE OF PRESENTATION
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English rules on remoteness of damage for
breach of contract
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Damages for late redelivery under a period
charter.
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Decision in The Achilleas
o Facts
o Outcome
o Analysis
o Commentary
o Subsequent cases
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Has the position changed?
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REMOTENESS OF DAMAGE UNDER ENGLISH LAW
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Two aspects of remoteness
o Causation – has the defendant caused
the particular damage to the claimant?
o Protection – to what extent is the
claimant protected from the particular
damage that has been suffered?
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Causation is the dominant issue in tort
whereas in contract the issue of protection is
paramount.
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Rules on remoteness in contract and tort are
not the same.
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REMOTENESS – Contract Rules (1)
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Purpose of damages is to place the claimant as far as possible in the same
position as he would have been had the contract been performed.
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Damages recoverable are limited to the type or kind of losses that are in
the contemplation of the parties at the time when the contract is formed.
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Starting point is decision in Hadley v Baxendale (1854)
"...where two parties have made a contract which one of them has broken, the
damages which the other party ought to receive in respect of such breach of
contract should be such as may fairly and reasonably be considered either
arising naturally, i.e. according to the usual course of things, from such breach
of contract itself, or such as may reasonably be supposed to have been in the
contemplation of both parties, at the time they made the contract, as the
probable result of the breach of it."
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REMOTENESS – Contract Rules (2)
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Rule restated in Victoria Laundry –v- Newman (1949)
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Claimant is only entitled to recover such part of the loss that was at the time
the contract was made was reasonably foreseeable as liable to result from
the breach.
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Reasonable foreseeability depends on knowledge, either imputed or actual.
A reasonable person is taken to know what loss is liable to result from a
breach of contract in the ordinary course. A defendant may also know of
special circumstances outside the ordinary course of things of such a kind
that a breach of those special circumstances would be liable to cause more
loss.
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REMOTENESS – Contract Rules (3)
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Restated rule was qualified in The Heron II (1967)
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Crucial question on remoteness is whether:
"on the information available to the defendant when the contract was
made he should, or the reasonable man in his position would, have
realised that such loss was sufficiently likely to result from the breach
of contract to make it proper to hold the loss flowing naturally from
the breach or that a loss of that kind should have been within his
contemplation".
•
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And then came The Achilleas ......
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DAMAGES FOR LATE REDELIVERY
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A charterer who fails to redeliver a ship at the
end of an agreed charter period is in breach.
If the order is given in the knowledge that
redelivery will be late then the order is an
illegitimate and the owner is not bound to
perform it.
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If an owner does perform the voyage either
because he is obliged to or agrees to do so
then he is entitled to damages
to
compensate for loss of opportunity to take
advantage of the market during the period of
overrun (The Gregos (1995))
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DAMAGES FOR LATE REDELIVERY
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Where the market rate exceeds the charter
rate at the time when the ship should have
been redelivered then the Owner can recover
as the difference between the two rates for
the overrun period.
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If the charter rate is greater than the market
rate then the owner is entitled to be paid the
charter rate up until the point when the ship
is redelivered. (The London Explorer (1972))
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The Achilleas - Facts
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Ship chartered for 5 to 7 months at a daily
hire rate of $13,000. Charter extended for a
further period at a daily rate of $16,750.
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Charterers gave notice of delivery and owners
fixed vessel for a 4 to 6 month period at a
rate of $39,500 per day with a cancelling
date.
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Vessel redelivered 9 days late. At the time of
redelivery rates had fallen sharply. The new
charterers threatened to cancel and owners
were forced to negotiate a reduction in the
hire rate to $31,500. A new charter was for a
period of 191 days.
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The Achilleas - Facts
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Damages claimed by owners amounted to $1,364,584.37 being the
difference between the hire rates for the original and subsequent charters
for the entire 191 day period of the subsequent fixture.
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Charterers asserted that the only losses recoverable were difference
between charter and market rate during the 9 day overrun which amounted
to $158,301.17.
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The Achilleas - Outcome
Majority Arbitrators
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Dissenting Arbitrator •
Reasonable person in the position of the charterers
would not have understood that he would assuming
liability for the risk of the type of loss in question.
High Court
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Upheld decision of majority arbitrators.
Court of Appeal
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Upheld decision of majority arbitrators
House of Lords
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Allowed the appeal and overturned majority arbitrators
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Owners loss recoverable as not unlikely to result from
breach of contract by delay in redelivery.
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The Achilleas - Analysis
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Unanimous decision of the House of Lords
but five judgments delivered.
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Two distinct approaches in the judgments:
o "Broader approach" which sought to
reposition contractual rules on
remoteness
o "Orthodox approach" which held that
loss was not foreseeable.
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Majority in favour of broader approach.
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The Achilleas – Broader Approach
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To treat as the "starting point" of damages to
place the innocent party in the position as if
the contract had been performed is the
wrong place to begin.
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Before considering principles on which
damages are calculated it is necessary to first
decide what type or kind of loss the claimant
is entitled to be compensated for.
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This question is answered by asking whether
loss is a type or kind for which the defendant
has assumed responsibility.
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The Achilleas – Broader Approach
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Not sufficient that the type of loss is a foreseeable consequence of the
breach of contract. The type of loss must also be within the reasonable
contemplation of the parties at the time when the contract was made.
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In the absence of special knowledge a type of loss is within the reasonable
contemplation of the parties if, having regard to the terms of the contract
against its commercial background and market expectations, the parties
reasonably assumed liability for it.
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Arbitrators erred in adopting only the foreseeability test. The loss of
profits from the subsequent fixture beyond the overrun period was not
within the reasonable contemplation of the parties because the charterers
had not assumed liability for such losses arising from the loss of the
fixture.
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The Achilleas – Orthodox Approach
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Relevant test is forseeability. Was the loss
sufficiently likely to result from the breach to
make it proper to hold that it flowed naturally
from the breach or would it have reasonably
been contemplated by the contracting parties as
being likely to happen in the ordinary course of
things as a result of the breach?
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Answer given is that the loss was not a type
which at the time when the contract was made
the parties would have contemplated as
resulting in the ordinary course of things from
late redelivery. Loss stemmed from an usual
occurrence namely extreme market volatility
within a short space of time.
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The Achilleas – Commentary
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Outcome welcomed but the reasoning in the
judgements has been the subject of criticism.
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Orthodox approach has been questioned on
the grounds that "forseeability" is a question
fact and it was not open to the House of
Lords to reverse a factual finding of the
arbitrators.
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In addition the fact that a loss may be
extreme or extraordinary is not usually a bar
to recovery where the type of loss is found to
be foreseeable
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The Achilleas – Commentary
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Most criticism directed at the attempt to redefine the contractual rules on
remoteness by reference to an "assumption of responsibility" test.
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Some suggest that it is "much ado about nothing" and the case is of
limited significance and peculiar to its own facts.
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Other attacks made on the grounds that the reasoning is unsupported by
authority and it confuses the test of remoteness in contract and tort.
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Concern expressed that to replace external default rules of law with the
implicit intention of the parties whilst attractive is impractical:
"Beguiling as it may seem, any approach which invites judges to use evidence
they do not possess to seek answers that may not exist is likely to produce
explanation which does not convince or results that do not please".
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THE ACHILLEAS – Subsequent Cases
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Supershield Ltd –v- Siemens Building Technology FE Ltd (2010) CA held
the orthodox approach on forseeability can be displaced where having
considered the contract and commercial background the standard rule
did not reflect the imputed intention of the parties. This can work both
ways so that the party can be held liable if it is found that it has
assumed responsibility for a loss is not foreseeable
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"Sylvia" (2010) held that the orthodox approach remains the general
test of remoteness applicable in the great majority of cases. In unusual
cases, the context, surrounding circumstances or general
understanding in the relevant market may make it necessary to
specifically consider whether there has been an assumption of
responsibility.
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HAS THE POSITION CHANGED?
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Liability of a time charterer who redelivers the vessel late where the
market rate exceeds the charter rate is for the difference between the two
rates for the period of the overrun.
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Charterer is not liable for the loss of a subsequent fixture unless at the
time when the contract was concluded he was aware that owners had refixed the vessel and that late redelivery would result in the loss of the
subsequent fixture.
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This measure will apply whether or not the last voyage orders are
legitimate or illegitimate.
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Where the market rate is less than the charter rate then the owner is
entitled to the full charter rate up until the time of actual redelivery.
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WHERE NEXT ON REMOTENESS?
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No new generally applicable legal test of
remoteness in contract cases.
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Orthodox approach will continue to operate
in majority of cases as the prima facie
assumption of the parties' intentions.
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Achilleas likely to be followed where the
orthodox test leads to an unquantifiable,
unpredictable, uncontrollable or
disproportionate liability or where there is a
clear evidence that such a liability would be
contrary to market understanding and
expectations.
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Thank you for your attention!
OSLO ･ BERGEN ･ LONDON ･ SINGAPORE ･ SHANGHAI ･ KOBE
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