UK: "The Amer Energy": Views On "The Achilleas" And Remoteness Of Damage In Contract

Last Updated: 23 July 2009
Article by Paul Taylor

The case Note Asm Shipping Ltd. of India v TTMI Ltd. of England ("The Amer Energy") [2009] 1 Lloyd's Rep 293 is of particular interest as one of the first to provide judicial consideration of the key decision in "The Achilleas" [2008] 2 Lloyd's Rep. 275 (reviewed in our November 2008 update). Mr. Justice Flaux in the Commercial Court had to consider whether a Shipowner's request for permission to appeal from an arbitration award would be granted pursuant to the Arbitration Act 1996.

The arbitrators had not considered the then very recently decided case of "The Achilleas" before publishing their July 2008 award. Although Owners' solicitors had invited reconsideration by the arbitrators of their award, immediately after its publication, Charterers had not agreed and the Tribunal declined to engage in any discussion about the award or its contents.

Flaux J's view was that the majority of the House of Lords in "The Achilleas" had not intended to lay down a completely new test for recoverability of contractual damages and had not departed from the classic rule in Hadley v Baxendale (1854) 9 Exch 341, 156 ER 145, refined in subsequent cases and in particular the House of Lords' decision in C Czarnikow Ltd v Koufos ("The Heron II") [1967] 2 Lloyd's Rep. 457; [1969] 1 AC 350.1

The two limbs of Hadley v Baxendale are that recoverable damages are those which:

  1. "...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,
  2. such as may reasonably be supposed to have been in the contemplation of the both parties, at the time they made the contract, as the probable result of the breach of it ..."

In "The Achilleas" there appeared to be confusion in the analysis of the second limb above. Some of their Lordships considered whether the damages in question (the loss of a lucrative re-fixture of the vessel through delayed redelivery) were in the contemplation of the parties whereas others strayed into the realm of foreseeability.

Lord Rodger, with whom Lord Walker agrees and whose analysis is the only one acceptable to Baroness Hale, decided that the "loss could not have been reasonably foreseen as being likely to arise out of the delay in question" and "was, accordingly, too remote to give rise to a claim for damages for breach of contract."

Lord Hoffmann considered the question to be whether a given type of loss is one for which a party assumed contractual responsibility as a matter of law. His answer was that the charterer could not reasonably have been regarded as having assumed the risk of the owner's loss of profit on the follow on charter.

Lord Hope agreed. He said that "[a]ssumption of responsibility, which forms the basis of the law of remoteness of damage in contract, is determined by more than what at the time of the contract was reasonably foreseeable...The question is whether the loss was a type of loss for which the party can reasonably be assumed to have assumed responsibility".

Flaux J. was of the view that if Lord Hoffmann had purported to lay down some new test as to recoverability of damages in contract, he had been in a minority and had recognised, in any event, that any departure from the normal principles of remoteness of damage would be unusual. Although Lord Hope had adopted a similar analysis, he had done so essentially by way of application of established principles. Mr Justice Flaux did not consider that Lord Hoffman intended that in all shipping cases (as opposed to the type of time charter case under consideration in "The Achilleas") the rule in Hadley v Baxendale would no longer apply. If he had been saying that, it had not been a view shared by the majority of the House.

Flaux J. held that the Tribunal had correctly applied the rules of remoteness of damage as derived from Hadley v Baxendale; that the decision of the House of Lords in The Achilleas had not changed the law and that the arbitrators could not be criticised for having adopted the approach they did.

It will be of much interest to see how lower courts in England interpret the decision in "The Achilleas" in light of academic concern following the confusion of the themes of recoverability of damages in tort (foreseeability) and contract (natural consequence or within the contemplation of the parties) that appear in the House of Lords' judgments.


1 See Lord Hope at paras 31 to 34, Lord Rodger at paras 47 to 52, Lord Walker at paras 66 to 78 and Baroness Hale at paras 89 to 93.

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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