The type (or kind) of loss may also be defined by the contractual responsibility assumed by the defendant. If a type of loss falls outside the range of the defendant’s responsibility, there is no allowable claim to which the rules of remoteness of damage can attach, with the result that recovery will be denied even if the loss satisfies the probability standards of the remoteness of damage rule. In Transfield Shipping Inc. v Mercator Shipping Inc. (The Achilleas),[1] time charterers were late in redelivering the vessel, with the result that the vessel was tendered to the next charterer outside the laycan period.[2] The subsequent charterers were entitled to refuse the vessel, but they and the owners reached a compromise by which a lower charter rate was substituted for the rate initially agreed. Between the date the second charter was fixed and the date the ship was delivered to the subsequent charterers, the time charter market had fallen. It was found as a fact by arbitrators that the loss experienced fell within the first limb of the rule in Hadley v Baxendale[3] as arising ‘naturally, ie according to the usual course of things, from [the] breach of contract itself’.[4] The defendant charterers, however, did not know the date when the subsequent charter was fixed, the charter rate agreed in that charter, or the length of that charter. Reversing the court below, the House of Lords refused the owners’ claim for the difference between the initial subsequent charter rate and the varied rate agreed after the vessel had overran the laycan period (the subsequent charter loss), and confined the owners’ damages to the difference between the agreed rate in the first charter and the prevailing market rate for the nine-day period representing the defendants’ lateness in redelivering the vessel to the claimant owners (the market loss). The market loss basis for the assessment of damages was the one reflecting the ‘general understanding in the shipping market’[5] and the risk accruing to the charterers of late redelivery if the subsequent charter loss basis were adopted was unquantifiable.[6] They were two different types of loss and the defendant charterers could not fairly be taken to have accepted responsibility for the subsequent charter loss.[7] The approach thus laid down to the award of damages by a majority of the House of Lords amounts to a preliminary screening of claims[8] before they are submitted to the discipline of the remoteness of damage rule and firmly aligns the award of damages with the interpretation of the contract.
The Achilleas has by a bare majority changed the direction of the law[9] but only time will determine the extent of that change. Certain aspects of the decision call for comment. First, the decision has not clarified what amounts to different types of loss.[10] There is circularity in treating a different type of loss as one outside the risk for which a contracting party reasonably accepts responsibility, whilst defining the range of responsibility by reference to different types of loss. The difficulty thus created owes much to the need to work with the accepted rule that it is the type and not the extent of loss that has to be contemplated for the purpose of the remoteness rule.[11] Secondly, in changing the direction of the law, reliance was placed on certain authorities that were applying in an orthodox way the remoteness of damage rule.[12] Thirdly, as innovative as the approach may be in The Achilleas, it is essentially conservative in protecting well-established (indeed, conservative) commercial understandings, in a way that the House of Lords in The Heron II[13] was not, when it overturned a long-established authority limiting a carrier’s liability to cargo receivers, for failing to prosecute a voyage with due dispatch, to interest on the invoice value of the cargo during the period of delay.[14] Fourthly, it is not clear upon what evidence the court reached its conclusion that the charterers could not fairly be said to have assumed responsibility for the subsequent charter loss. The interpretation of a written contract is of course a matter of law but the interpretation of this contract rested, not upon the express words of the parties, but upon what might be implied from all the circumstances. Fifthly, although the notion of remoteness of damage as including a reference to contractual assumptions of responsibility[15] has been deprecated in quite recent times,[16] The Achilleas has reinstated its importance and indeed has placed it as a matter to be considered in advance of the remoteness rule itself. Sixthly, if the owners had expressly disclosed the risk of subsequent charter loss to the defendants at the charter date, recovery of subsequent charter loss might have flowed from the ordinary application of the remoteness of damage rule and without any need to have recourse to the preliminary screening process laid down in The Achilleas. When the remoteness of damage rule is applied, pre-contractual disclosure under the second limb of the rule in Hadley v Baxendale is necessary to recover damages for losses that, in the light of the obligor’s knowledge, are not sufficiently probable to satisfy the first limb of the rule. This highlights the core of the decision in The Achilleas, that it excludes liability for losses that the parties clearly did contemplate as not unlikely to result from a breach of the contract and that did not need to be made the subject of pre-contractual disclosure. The approach of the majority in The Achilleas may be better suited to tort claims, which have to satisfy a lower standard of probability than contract claims. Seventhly, despite the probability of subsequent charter loss, the court reached the conclusion it did despite the fact that certain charters expressly excluded such liability.[17] It might fairly be asked whether the onus should have been on the owners to exclude liability instead of on the charterers to raise expressly the issue of subsequent charter loss. This conclusion may have had something to do with the acquiescence of the owners in the defendant charterers’ decision to order the ship on its last voyage, which resulted in the late redelivery. Nothing in the case, however, suggest that the owners had any right to reject the orders for the last voyage, on the ground that it was too late to be a legitimate last voyage. Even had they expressed their doubts and raised the issue of the charter following on, it is not clear that this would have added to the charterers’ contractual responsibility. For the purpose of the second limb of the rule in Hadley v Baxendale, such post-contractual disclosure would have come too late. Eighthly, although the relevant authorities are not rehearsed, the result in The Achilleas supports the approach taken in sale of goods cases where damages for non-delivery are presumptively assessed by reference to the market prevailing at the breach date and not by reference to any sub-sale price previously negotiated by the buyer with a sub-buyer.[18]
[1] [2008] UKHL 48.
[2] The laycan, or laydays cancelling, clause in a time or voyage charter defines the range within which the owners must deliver the vessel to the charterers. They may not require the charterers to accept delivery before the commencement of the laycan period and the charterers are entitled to cancel the charter if the vessel is tendered after the laycan period has expired.
[3] (1854) 9 Ex 341.
[4] The arbitrators’ finding seems to have been reversed by Lord Rodger: [2008] UKHL 48 at [60], with whom Baroness Hale concurred at [93].
[5] [2008] UKHL 48 at [6] (Lord Hoffmann).
[6] Ibid., at [23] (Lord Hoffmann), [34] (Lord Hope).
[7] Ibid., at [15] (Lord Hoffmann), [30] (Lord Hope), [69] (‘common basis on which the parties were contracting), [86]-[87] (Lord Walker). Lord Rodger and Baroness Hale did not adopt this approach but concurred with the majority in the result when applying the rule of remoteness of damage: ibid., at [63] and [93].
[8] But probably only to ‘particular types of contract arising out of general expectations in certain markets, such as banking and shipping’: [2008] UKHL 48 at [11]. Courts are for understandable reasons particularly sensitive to the need not to upset risk calculations in financial markets, though whether that same sensitivity should apply in the world of shipping is a different matter.
[9] It ‘adds an interesting but novel dimension to the way in which the question of remoteness of damage in contract is to be considered’: ibid., at [93] (Baroness Hale).
[10] Note however the example cited by Lord Hoffmann at [22] of Victoria Laundry (Windsor) Ltd v Newman Industries Ltd, where a distinction was drawn between loss of laundry profits and loss of profits from especially lucrative dyeing contracts.
[11] e.g., Wroth v Tyler [1974] Ch 30; Jackson v Royal Bank of Scotland plc [2005] UKHL 3; [2005]1 WLR 377. The tension between type and extent of lost profits is clearly evident in Satef-Huttenes SpA v Paloma Tercera Shipping Co. (The Pegase) [1981] 1 Lloyd’s Rep. 175.
[12] e.g., Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co. SA (The Pegase), above; Monarch Steamship Co. Ltd v Karlhamns Oljefabriker (A/B) [1949] AC 196..
[13] Koufos v C. Czarnikow Ltd (The Heron II) [1969] 1 AC 350.
[14] The Parana (1877) 2 PD 118.
[15] See British Columbia etc. Saw Mill Co. v Nettleship (1868) LR 3 CP 499.
[16] Lord Upjohn in Koufos v C. Czarnikow Ltd (The Heron II), above n. 00 at 422. Cf. Robophone Facilities Ltd v Blank [1966] 1 WLR 1428.
[17] [2008] UKHL 48 at [26].
[18] See discussion below.