UK: The Achilleas - No New Generally Applicable Test

Last Updated: 17 May 2010
Article by Chirag Karia and David Semark

Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd [2010] EWHC 542 (Comm)

Key Facts

There has been much speculation as to the effect of 2009 decision of the House of Lords in "The Achilleas" on the proper approach to damages in contract. A judgment handed down by Mr Justice Hamblen on the 18th of March provides welcome clarification to the legal fraternity: there is no new generally applicable legal test of remoteness in damages. Below is a more detailed briefing note on the case written by David Semark and Chirag Karia of Quadrant Chambers, who acted for the successful Respondent in the case. John Passmore, also of Quadrant Chambers, was instructed for the Appellant.

While Mr Justice Hamblen's findings are of general importance to anyone involved in the assessment of contractual damages under English law, they are also of importance for the shipping industry. The Commercial Court has held that "The Achilleas" does not preclude a time-charterer from claiming loss of profits from an owner, where the owners' breach of charterparty leads to the charterer losing a sub-fixture.

Insight & analysis

  1. The judgment handed down in the Commercial Court on 18th March 2010 by Mr Justice Hamblen in The Sylvia provides further important guidance on the impact of the decision of the House of Lords in The Achilleas on the proper approach to damages in contract in general, and its effect on charterparty cases in particular.
  2. In The Achilleas, the House of Lords held that where a vessel on time charter is redelivered late by charterers, an owner's damages are limited to the difference between the charter and market rates for the overrun period and that an owner cannot recover lost profits on a cancelled follow-on fixture. The issue in The Sylvia was whether a similar limit applied where the owner's breach of charter caused his time-charterer to lose a sub-fixture. The Court held that it did not.
  3. The issue came before the Court by way of an appeal from an arbitration award, in which the tribunal had found that owners had been in breach of their due-diligence and maintenance obligations, as result of which the Syliva had been detained by port-state control. This in turn led to charterers missing the cancelling date on their sub-fixture, which sub-charterers then cancelled. The substitute employment which charterers were able to find post-cancellation was less profitable than the cancelled fixture, and charterers claimed the difference from owners. The tribunal found in charterers' favour.
  4. The owners appealed, contending, in reliance on The Achilleas that the charterer's only recoverable loss was the difference between the charter and market rates for the period of the detention and that the profits lost on the cancelled sub-fixture were too remote to be recoverable.
  5. In order to decide the appeal, Mr Justice Hamblen had to ascertain the ratio dedidendi of The Achilleas. As he pointed out, there has been some confusion on this point due to the disparity between the two approaches adopted by their Lordships: (i) an orthodox approach, which asks whether at the time of concluding a particular contract, the parties would have contemplated whether the breach concerned would "in the ordinary course of things" cause the kind of loss claimed; and (ii) a broader approach, led by Lord Hoffman, which asks, in some "unusual" cases, whether "the context, surrounding circumstances or general understanding in the relevant market shows that a party would not reasonably have been regarded as assuming responsibility for such losses".
  6. After reviewing the speeches of their Lordships, and subsequent commentary on the case, Hamblen J concluded that:

    "In my judgment, the decision in The Achilleas results in an amalgam of the orthodox and broader approach. The orthodox approach remains the general test of remoteness applicable in the great majority of cases. However, there may be "unusual" cases, such as The Achilleas itself, in which the context, surrounding circumstances or general understanding in the relevant market make it necessary specifically to consider whether there has been an assumption of responsibility. This is most likely to be in those relatively rare cases where the application of the general test leads or may lead to an unquantifiable, unpredictable, uncontrollable or disproportionate liability or where there is clear evidence that such a liability would be contrary to market understanding and expectations."
  7. He added that "in the great majority of cases it will not be necessary specifically to address the issues of assumption of responsibility," holding that this was consistent with the approach taken in other post-Achilleas decisions, most importantly, the recent decision of the Court of Appeal in the non-shipping case of Supershield Ltd v. Siemens Building Technologies [2010] EWCA Civ 7.
  8. In an important passage for practitioners, arbitrators and the commercial community generally, the Judge emphasised further that, "...it is important that it be made clear that there is no new generally applicable legal test of remoteness in damages. It appears that in a number of cases, this is being argued and that decisions are being challenged for failing to recognise or apply the assumption of responsibility test. This results in confusion and uncertainty."
  9. Applying these principles to the Tribunal's decision, Mr Justice Hamblen held that they had not erred in law by concluding that lost profits on a sub-fixture lost due to an owner's breach of contract were not too remote. He relied on the fact that period charters often contain an express liberty to sub-let, and that there is both judicial and academic authority for the view that they are recoverable. In particular, in The Derby [1984] 1 Lloyd's Rep. 635, Hobhouse J had clearly recognised that such a claim could properly be made. He also pointed out that where a sub-fixture is lost, there will often be a loss regardless of market considerations because charterers will have to find substitute employment with the vessel in a distressed position.
  10. There were in addition, important difference between The Achilleas and the facts of The Sylvia. In particular there was no market understanding or expectation that a charterers' loss is limited to the difference between the charter and market rates for the period of the delay caused by the owner's breach. On the contrary, the general understanding – supported by Hobhouse J's judgment in The Derby and results in arbitral references and assumptions made in court cases – was that damages could be recovered for loss of a sub-fixture. Also, it was less likely that an unquantifiable loss would arise because the lost sub-charter could never be longer than the length of the head charter itself, and, in many cases the cancelled sub-fixture would be a voyage charter in any event.
  11. On this basis, the Owners' appeal was dismissed. Leave to appeal was also refused, so the judgment of Hamblen J is the last word on this issue for the moment.
  12. Chirag Karia of Quadrant Chambers acted for the successful Charterers. John Passmore, also of Quadrant Chambers, acted for the Appellant Owners.
  13. A copy of the judgment can be downloaded from BAILII at: http://www.bailii.org/ew/cases/EWHC/Comm/2010/542.html .

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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