Transfield Shipping Inc. of Panama v Mercator Shipping Inc. of Monrovia (The Achilleas)
| Jurisdiction | England & Wales |
| Judge | Ward,Tuckey,Rix L JJ. |
| Judgment Date | 06 September 2007 |
| Date | 06 September 2007 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Ward, Tuckey and Rix L JJ.
Dominic Kendrick QC (instructed by Swinnerton Moore) for the appellant.
Simon Croall (instructed by Bentleys, Stokes & Lowless) for the respondent.
The following cases were referred to in the judgment of Rix LJ:
Alma Shipping Corp of Monrovia v Mantovani (The Dione)UNK [1975] 1 Ll Rep 115.
Arta Shipping Co Ltd v Thai Europe Tapioca Shipping Service Ltd (The Johnny)UNK [1977] 2 Ll Rep 1.
Bence Graphics International Ltd v Fasson UK Ltd [1997] CLC 373; [1998] QB 87.
Chiswell Shipping and Liberian Jaguar Transports Inc v National Iranian Tankers Co (The World Symphony)UNK [1992] 2 Ll Rep 115.
Gray & Co v Christie & Co (1889) 5 TLR 577.
Hadley v BaxendaleENR (1854) 9 Exch 341; 156 ER 145.
Hyundai Merchant Marine Co v Gesuri Chartering Co (The Peonia)UNK [1991] 1 Ll Rep 100.
Koch Marine Inc v d'Amica Societa di Navigazione arl (The Elena d'Amico)UNK [1980] 1 Ll Rep 75.
Koufos v C Czarnikow Ltd (The Heron II)ELR [1969] 1 AC 350.
Kwei Tek Chao v British Traders and Shippers LtdELR [1954] 2 QB 459.
Louis Dreyfus Trading Ltd v Reliance Trading LtdUNK [2004] 2 Ll Rep 243.
Meyer v R F Sanderson & Co (1916) 32 TLR 428.
North Sea Energy Holdings NV v Petroleum Authority of ThailandUNK [1997] 2 Ll Rep 418.
Parana, TheELR (1877) 2 PD 118.
Promet Engineering (Singapore) Pte Ltd v Sturge (The Nukila) [1997] CLC 966.
R & H Hall Ltd v W H Pim Junr & Co LtdUNK (1928) 30 Ll L Rep 159.
Satef-Huttenes Alberns SpA v Paloma Tercera Shipping Co SA (The Pegase)UNK [1981] 1 Ll Rep 175.
Shipping Corp of India Ltd v NBB Niederelbe Schifffahrtsgesellschaft GmbH (The Black Falcon)UNK [1991] 1 Ll Rep 77.
Timber Shipping Co SA v London and Overseas Freighters (The London Explorer)ELR [1972] 1 AC 1.
Torvald Klaveness A/S v Arni Maritime Corp (The Gregos)UNK [1993] 2 Ll Rep 335 (CA); [1994] CLC 1188 (HL).
Victoria Laundry (Windsor) Ltd v Newman Industries LtdELR [1949] 2 KB 528.
Watson Steamship Co v Merryweather & CoUNK (1913) 18 Com Cas 294.
Shipping — Time charter — Damages for late redelivery — Remoteness — Breach of contract — Loss of profit — Owners had fixed new time charter to begin after redelivery — Owners had to obtain extension of cancelling date under new charter and to accept lower rate of hire — Reduction in rate of hire recoverable as damages under first limb of Hadley v Baxendale— Reduction of hire within contemplation of parties as not unlikely result of breach — Loss of profit on subsequent fixture arose naturally from breach.
This was an appeal by charterers, Transfield, from the decision of Christopher Clarke J ([2006] 2 CLC 1069) that shipowners, Mercator, were entitled to recover as damages for late redelivery of a time-chartered vessel the loss of profit on a subsequent fixture.
Mercator time chartered its vessel, the Achilleas, to Transfield. The charter period was extended and the latest redelivery date became midnight on 2 May 2004. The charter was on an amended NYPE 1946 form and provided for “20/15 days approximate notice of redelivery date and port, 10/5/3 days definite notice of redelivery date and port”. Transfield gave, successively, 20, 15 and 10 days' notice of redelivery between 30 April and 2 May. Mercator fixed the vessel for a new four to six month period charter (to Cargill) at a daily hire rate of $39,500. Under the new fixture with Cargill, Mercator agreed a laycan period of 28 April to 8 May. Although Transfield had given notice of redelivery, it nevertheless fixed the vessel under a subcharter to load a cargo of coal at Quingdao for discharge at Tobata and Oita. Loading at Quingdao was completed on 24 April. Within days of the loading of the vessel, Transfield indicated to Mercator that it was expecting redelivery at Oita to fall back to 6 or 7 May. The vessel arrived at Oita on 30 April, following discharge at Tobata, but was delayed at Oita and was not redelivered to Mercator until early on 11 May.
On 5 May Mercator had agreed with Cargill that the cancellation date under the new fixture would be extended to 11 May and in return Mercator had to reduce the hire rate from $39,500 to $31,500, since the market had fallen.
Mercator claimed damages for the loss of the original Cargill hire rate, at $8,000 per day, over the period of the Cargill fixture, in the agreed sum of $1,364,584.37. Transfield argued that the damages were limited by the principles of remoteness to the difference between the charter rate and the market rate from the due redelivery date until actual redelivery (the overrun period).
Arbitrators by a majority concluded that the loss of fixture damages claimed by the owners fell within the first rule of Hadley v Baxendale. The judge upheld that decision. Transfield appealed arguing that for reasons of authority, principle and pragmatism the measure of damages for late redelivery of a time chartered vessel should, absent special knowledge of a subsequent fixture going beyond the facts of this case, be limited to loss of current market value during the overrun period.
Held, dismissing the appeal:
2. Transfield submitted that the owners' third party transactions were irrelevant, but in the present case the issue was not one of causation, but of remoteness. On the findings of the majority arbitrators, the Cargill fixture was made in accordance with the due redelivery date, and in the immediate run-up to it, and it was entered into in response to the charterers' formal redelivery notice in accordance with their contractual redelivery obligations. Owners acted in reasonable mitigation of charterers' breach by negotiating with Cargill an extension of the cancellation date to 11 May, on pain of dropping the new fixture rate by $8,000: a reduction dictated by a swift drop in the market and agreed by reference to the new market price. The length of the follow-on fixture was irrelevant, unless it amounted to an extravagant or unusual bargain, which in this case it was not.
3. There was no fixed rule, and no binding authority, that damages for late redelivery of a time chartered vessel were limited to the overrun period measure. The jurisprudence would therefore not have to change in order to accommodate the damages awarded by the majority arbitrators in this case: it would merely have to develop, to reflect the claim now made for the first time. But its development would be entirely in accordance with principle. The rule for which Transfield contended was both undesirable and uncommercial.
Rix LJ:
1. This appeal raises a novel point concerning damages for late redelivery of a time-chartered vessel. The issue is this: if a charterer is liable to pay damages to an owner for late redelivery of the chartered vessel, are those damages limited by the principles of remoteness to the difference between the charter rate and the market rate at the time of redelivery (if the latter is higher than the charter rate) over the length of the overrun period, that is to say from the due redelivery date until actual redelivery, or can the owner claim damages based on the loss of his next fixture?
2. On the facts of this case, this question means the difference, as the parties are agreed, between damages in the sum of only US$158,301.17 (the damages in relation to the overrun period) and the much larger sum of $1,364,584.37 (the damages in relation to the loss of fixture).
3. It is common ground that there is no binding decision of the courts specifically on this issue. The appellant charterers, however, submit that the rule for damages for late redelivery has been so often stated in terms of the overrun period that this court should now confirm that, save only in special circumstances (not to be found in this case) falling within the second limb of the principle in Hadley v BaxendaleENR(1854) 9 Exch 341, that rule is, and should be, the law. As such, the rule would have the necessary virtues of clarity, certainty, ease of calculation, and fairness. The respondent owners submit, on the other hand, that it is common ground that they have in fact suffered the loss of fixture damages which they claim as a result of the charterers' breach, and that that loss was caused by that breach, and that the arbitrators, and the commercial judge, were right to find that those damages fell within the first rule of Hadley v Baxendale. Any rule of damages which in these circumstances failed to award them their actual loss would conflict with the compensatory principle, and would be arbitrary and unfair.
4. The owners are Mercator Shipping Inc of Monrovia. They were claimants in the arbitration, respondents to an appeal from the arbitrators' award to the commercial court, and respondents again in this court. The charterers are Transfield Shipping Inc of Panama. They were respondents in arbitration and appellants in the commercial court (see [2006] 2 CLC 1069) and again here. I shall refer to the parties as the owners and the charterers respectively.
5. The arbitration award dated 17 May 2006, awarding $1,364,584.17 to the owners, is that of Messrs David Farrington, Christopher Moss and Bruce Buchan. Mr Moss, while participating in the award, delivered separate, dissenting reasons.
6. The facts stated by the majority of Messrs Farrington and Buchan, as supplemented with the parties' consent in the judgment of Christopher Clarke J, were as follows.
7. By a time charter dated 22 January 2003 the owners let their vessel, the Achilleas, to the charterers for a period of about 5 to 7 months, at a daily hire rate of $13,500. By an addendum to the charter dated 12 September 2003 the vessel was fixed in direct continuation for a further period of minimum 5 months maximum 7 months, exact period in charterers' option, at a new daily hire rate of $16,750. The extended period under the addendum...
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