UK: Something Old Something New - The Remoteness Rule

Last Updated: 17 September 2010
Article by Lucy Wakenshaw

The recoverability of damages for loss of revenue following a breach of a charter - and, indeed, the law relating to remoteness more generally - was thrust into uncertainty in July 2008, when the House of Lords handed down its judgment in The "ACHILLEAS"1 substantially qualifying Hadley v Baxendale, the seminal contractual damages decision which had remained largely unadjusted for over 150 years. 

The recent decision in The "SYLVIA"2 supports the most favoured view in Hadley v Baxendale on the recoverability of damages for loss of revenue following a breach of a charter, relegating The "ACHILLEAS" to extreme circumstances.

The "ACHILLEAS" Decision and the Orthodox Rule

The majority of the House of Lords asserted that, when assessing the recoverability of damages, the relevant question is whether the loss is of the kind or type for which the "contract breaker ought fairly to be taken to have accepted responsibility" according to the interpretation of the contract in its commercial setting.

This may be seen as a radical amendment to the orthodox test which allowed a party to recover damages for breach of a contract where the loss is:

  • "such as may fairly and reasonably be considered as arising naturally... according to the usual course of things, from such breach of contract itself" (which a reasonable man would have realised was a "not unlikely" consequence of the breach); 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". Further, the kind, though not the extent, of the damage should be foreseeable.

However, comfort can be taken from the judgment of Hamblen J in The "SYLVIA", the latest in a series of decisions subsequent to The "ACHILLEAS" which adopts the position that "in the great majority of cases it will not be necessary specifically to address the issues of assumption of responsibility".

As considered below, the assumption of responsibility "supplement" to the orthodox doctrine will apply in few cases other than those identical to the decision in The "ACHILLEAS" or where, by virtue of a technicality, the rule in Hadley v Baxendale does not suffice.

Comparison - The "SYLVIA" and The "ACHILLEAS"

The "ACHILLEAS" concerned the late redelivery by time charterers of a vessel on its final (legitimate) voyage. The delay resulted in a breach of the follow on charter, which allowed the new charterers to cancel the contract. Owners were able to renegotiate the charter, though at a substantially reduced daily rate of hire.

Owners sought damages for the difference between the original and renegotiated rates of hire for the entire duration of the follow on charter (four to six months). However, the House of Lords restricted owners' damages: (1) to the difference between the market rate of hire and the contractual rate of hire agreed in the original follow on charter; and (2) to the period between the date for redelivery and the date of the actual delivery.

The "SYLVIA" concerned the late delivery of a vessel for loading, caused by a breach of the owners' maintenance and due diligence obligations in the head charter. This resulted in a breach of the charterers' obligations in a sub-voyage charter, allowing the sub-charterers to cancel. The charterers secured another sub-charter but claimed against the owners under the head charter for damages representing their loss of profit.

Hamblen J refused to interfere with the Tribunal's assessment of damages, which included damages to account for the charterers' loss of revenue (giving credit for earnings on the substitute charter) for the whole period of the original charter. He considered that these damages were not too remote as:

  • time charters often contain an express liberty to sub-let, and any such arrangement will always be limited in length to the period of the head-charter; and
  • there is case law authority which provides that the lost revenue on a sub-fixture is recoverable and that such recovery is not limited to the period of delay caused by the breach of the charter.

When Will the "ACHILLEAS" Supplement Kick-In?

Though not exhaustive, the assumption of responsibility supplement should be considered where:

  • there has been an extreme and unexpected shift in market rates (or other financial consequences) unknown to the parties when they entered the contract; or
  • the parties' intention as shown in the contract appears expressly to exclude (or provide for) liability in such unexpected circumstances.


1. Transfield Shipping Inc v Mercator Shipping (2009)

2. Sylvia Shipping Co. Ltd v Progress Bulk Carriers Ltd (2010)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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