Sylvia Shipping Company Ltd v Progress Bulk Bonding Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hamblen,MR JUSTICE HAMBLEN |
| Judgment Date | 18 March 2010 |
| Neutral Citation | [2010] EWHC 542 (Comm) |
| Docket Number | Case No: 2009 : FOLIO 846 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 18 March 2010 |
[2010] EWHC 542 (Comm)
Before: Mr Justice Hamblen
Case No: 2009 : FOLIO 846
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr John Passmore (instructed by Jackson Parton) for the Claimant
Mr Chirag Karia (instructed by Marine Law) for the Defendant
Hearing dates: 5 th March 2010
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Hamblen :
Introduction
The Claimants (“Owners”) appeal in respect of questions of law arising out of an arbitration award dated 28 April 2009 (“the Award”) of Messrs Alan Oakley and William Wingate (“the Tribunal”).
The Award concerned various claims and counterclaims made by the Owners and the Respondents (“Charterers”) in relation to a time charterparty on an amended NYPE (1946) form dated 22 February 2000 (“the charterparty”) of the vessel mv “SYLVIA” (“the vessel”).
The Tribunal held that Owners had failed to exercise due diligence and had breached their contractual maintenance obligations, under lines 22–23 and 37–38 of the charterparty, in failing to maintain the steel-work within the cargo holds leading to a delay in readiness of the vessel to load a cargo of wheat at Baie Comeau. As a result a sub-charter made by the Charterers with Conagra Trade Group Inc (“Conagra”) was cancelled when the vessel missed the laycan dates. The Charterers claimed for loss of profit on the cancelled Conagra sub-charter and the Tribunal held that the claim succeeded to the extent of USD 273,706.12. It this part of the Award which is the subject of appeal.
The essential issue which arises on the appeal is the proper approach to damages in these circumstances and in particular whether damages based on the loss of a sub-fixture made are too remote in law. The Owners contended, in reliance upon the House of Lords decision in The Achilleas [2009] 1 AC 61, that the recoverable damages were limited to the difference between the charter and the market rate during the period of delay.
Factual background
The essential facts as found in the Award are that the Owners chartered the vessel to the Charterers on a period time charterparty dated 22 February 2000. The vessel was a single deck bulk carrier of 22,525 mt dwt, with 5 holds, built in 1981.
The charterparty was initially for 2–4 months +/-15 days, but was later extended. The last extension was made by way of an addendum dated 13 June 2003, under which the charterparty was extended for a further period of minimum/maximum 11/13 months in Charterers’ option at a hire rate of USD 5,900 per day.
On 11 March 2004 the vessel loaded a cargo of green petcoke at Anacortes, Washington, USA, for discharge at Port Alfred, Quebec Province, Canada.
On 30 March 2004, Charterers entered into a sub-voyage charter with Conagra for the carriage of a cargo of wheat from Baie Comeau to Casablanca, with a laycan spread of 14–22 April 2004. On 13 April 2004, Charterers declared the next loadport as Baie Comeau.
The vessel arrived at Port Alfred on 14 April 2004. Discharge commenced at 0010 on 15 April 2004.
On 15 April 2004 a Port State Control (“PSC”) inspection was carried out, which found 3 structures in the holds to be wasted.
Discharge and cleaning of the holds was completed 16 April 2004. On the same day, the Canadian Food Inspection Agency rejected 4 of the vessel's 5 holds for loading of grain and grain products. In response, Owners appointed contractors (who had cleaned the holds) for de-scaling work.
On 19 April 2004, the vessel arrived at Baie Comeau. The holds were inspected by PSC, who issued a detention order at 1500 that day due to violation of section 19 of SOLAS, recording that “Main Structure wasted in cargo holds Nos 1, 3 and 4”. Repairs were commenced on 22 April 2004.
Also on 22 April 2004, Conagra cancelled the sub-charter. On 23 April 2004, Charterers entered into a substitute fixture for the vessel with York Ltd (“York”) for one time charter trip to Lome, with delivery passing Baie Comeau anchorage outbound between 29 April and 3 May 2004.
Hold repairs were accepted as complete by Class and PSC at 1430 on 26 April 2004.
In relation to breach the Tribunal found that:
“7.17 We therefore find that the vessel's schedule was not sufficiently tight to have prevented the Owners from being able to have carried out maintenance of the steel work within the cargo holds.
7.18 WE THEREFORE FIND AND HOLD THAT THE OWNERS HAD NOT EXERCISED DUE DILIGENCE AND THAT THEY HAD BREACHED THEIR CONTRACTUAL MAINTENANCE OBLIGATIONS UNDER LINES 22–23 AND 37–38 OF THE CHARTER PARTY.”
In relation to remoteness the Tribunal found that damages associated with the loss of the Conagra fixture were “foreseeable” and “within the first limb of “Baxendale”“.
They further found that:
“8.11 In our opinion alarm bells should have been ringing loud and clear immediately after the Canadian PSC inspector issued the Form 5 on the 15 th April. As there was a tick in the box for Class being required that should have been attended to immediately. Repairs needed could have/would have been identified while the vessel was at Port Alfred and probably have commenced at that port.
8.12 In the circumstances, we found that had the Owners taken positive and realistic action when the problems were formally identified at Port Alfred, the repairs would in all probability have been completed within the Conagra laycan. We also found that the Owners did not keep the charterers fully or properly informed as to what was really taking place and thereby denied them the opportunity to attempt to negotiate an extension of the laycan.
8.13 In conclusion, WE FIND AND HOLD THAT THE OWNERS ARE LIABLE TO THE CHARTERERS FOR DAMAGES ASSOCIATED WITH THE LOSS OF THE CHARTER WITH CONAGRA.”
As to the quantum of damages, they found that the Conagra voyage would have taken 23.7467 days and have yielded a net revenue of USD804,222.05, resulting in a time charter equivalent rate of USD33,866.69 per day.
The Tribunal found that earnings made on the substitute charter with York had to be credited against the loss of revenue claimed. The net hire rate under the York charter was USD22,340.62 per day. The difference was therefore USD11,526.07 per day and, on the basis of credit being given throughout the period which the Conagra charter would have taken, they “found the Charterers loss to be: 23.7467 days x US$ 11,526.07 = US$ 273,706.12.”
The law on remoteness
The law on remoteness of damages in contract has long been based on the judgment of the Court of Exchequer in Hadley v Baxendale (1854) 9 Ex 341 as refined in subsequent cases, and in particular the House of Lords decision in Czarnikow v Koufos, The Heron II [1969] 1 AC 350.
In the classic statement of the rules regarding remoteness Alderson B in Hadley v Baxendale said at p354–55:
“… 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. Now, if the special circumstances under which the contract was actually made were communicated by the claimants to the defendants and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under this special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, would only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract.”
In The Heron II Lord Reid clarified the law on the degree of likelihood required in order that a claimant may recover damages for a particular type of loss. In a well known passage he said that the proper test is whether the loss in question is (at p382G-383A):
”of a kind which the defendant, when he made the contract, ought to have realised was not unlikely to result from the breach … the words “not unlikely”… denoting a degree of probability considerably less than an even chance but nevertheless not very unusual and easily foreseeable.”
In the light of the authorities, the generally accepted test for remoteness has been whether the loss claimed was of a kind or type which it would have been within the reasonable contemplation of the parties at the time that the contract was made as being not unlikely to result. However, the recent House of Lords decision in The Achilleas has called into question whether that remains a sufficient test.
In The Achilleas a time chartered vessel was delayed during a legitimate final voyage, and redelivered late. The late redelivery was a breach of the contract, which caused owners to fail to deliver the vessel within the laycan spread of the follow on charter. Owners were forced to renegotiate with the new charterers a substantially reduced rate of hire. Owners claimed damages for the difference between the original and renegotiated rates of hire for the entire duration of the follow...
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