The Achilleas: Custom and Practice or Foreseeability?

In January 2003 the Baltic Exchange Dry Index of freight rates stood at about 1,700. The war in Iraq began in March and, between then and the end of August, rates climbed steadily, if not spectacularly. In early October there was a sudden sharp rise which took the index to about 5,600 in early February 2004, but it fell back to 2,400 by the end of May. Freight rates therefore showed some volatility during 2003-2004, although nothing like the degree of volatility seen more recently.¹1

Between June 2006 and June 2008 the index rose from 2,300 to over 11,000 and then, in a matter of four or five months, fell back to less than 1,000.

The Achilleas was a 69,000 tonne bulk carrier, fixed under a time charter in January 2003 which had been extended in September 2003 at the rate of $16,750 a day for a further five to seven months at the charterers’ option, the last date for redelivery being 2 May 2004. On 20 April 2004 the charterers gave notice of redelivery between 20 April and 2 May. Next day the owners fixed the vessel to another charterer, on a falling market, for four to six months at $39,500 a day. The last date for delivery to the new charterers was 8 May, which gave the owners six days clearance. Unfortunately, through no fault of the charterers, the vessel was delayed in port during her last voyage and was not redelivered until 11 May. That meant that, with the market still on the slide, the new charterers were entitled to cancel. However, as they still wanted the ship, they agreed on 5 May not to cancel in return for a reduction of the hire to $31,500 a day; in other words, 20% less than they had agreed two weeks earlier.

The owners claimed, as damages for late redelivery, the difference between what the ship would have earned at the original rate during the minimum period of the new charter and what it earned at the lower rate they had been obliged to accept. That came to $1,364,584.37. The charterers said that damages for late redelivery were always the difference between the charter rate and the market rate for the number of days the ship was late. For nine days delay, that came to $158,301.17. The difference between the parties was unbridgeable and the dispute went to arbitration.

The arbitrators, by a majority, said that the question was governed by the first rule in Hadley v Baxendale.³3

(1854) 9 Exch 341.

That appeared to be an impeccably orthodox application of the standard test for remoteness of damage and was upheld by Christopher Clarke J in the Commercial Court⁶6

[2007] 1 Lloyd's Rep 19.

There was thus a good deal to suggest that the decision of the arbitrators and the lower courts in the Achilleas had come as a surprise to the shipping community. Instead of the charterer being able to make a simple calculation of what he owed and write a cheque, his liability was now open-ended and could involve quite complicated questions about whether the terms of the following fixture could reasonably have been foreseen. Nevertheless, that result seemed to follow inexorably from Hadley v Baxendale as interpreted in The Heron II. Two members of the Appellate Committee openly acknowledged in their opinions that they left the committee room thinking that the appeal would have to be dismissed, so I do not think it is giving away any secrets to say that, despite excellent argument by counsel on both sides, we were all either of that opinion or at something of a loss to explain why we were not. How, then, did we eventually come to a unanimous decision that the appeal should be allowed? We arrived there by different routes and I think that both courts and academic writers will be asking what the ratio decidendi was and whether the differences in reasoning make any difference.