Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008]
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The Achilleas or Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48 revolves around the legal principles concerning the remoteness of damage in English contract law.
Transfield Shipping, acting as a charterer, hired the ship The Achilleas from Mercator Shipping. The contract stipulated that Transfield would have the ship for five to seven months and return it by midnight on 2 May 2004. However, Transfield returned the ship late, on 11 May, causing complications in the subsequent chartering contract with Cargill International SA.
Cargill agreed to take the ship, but due to the delay, they negotiated a reduced rate of $31,500 a day instead of the originally agreed-upon $39,500 a day. The central issue in the case was determining the amount Transfield should pay to Mercator for the late return of the ship. Transfield argued for a payment reflecting the difference between the initial contract rate and the market rate prevailing during the delay, amounting to $158,301.17. Mercator, on the other hand, contended that Transfield should compensate for the loss incurred on the new chartering contract, totalling $1,364,584.37.
In the arbitration process, the majority ruled in favour of Mercator, holding that the loss from the reduced price in the next chartering contract fell within the first rule of Hadley v Baxendale [1854]. The arbitrators reasoned that this loss was a foreseeable consequence of the breach and one that Transfield, at the time of making the contract, ought to have realised was not unlikely to result from a delay in redelivery.
The Court of Appeal upheld the arbitrators' decision, emphasising that limiting damages for late redelivery solely to the overrun period measure was undesirable and uncommercial. Rix LJ argued that such a limitation would place owners too much at the mercy of charterers and create an imbalance in their respective positions.
However, the House of Lords unanimously reversed the Court of Appeal's decision, holding that the loss of profits in the next charter was not within the rule in Hadley v Baxendale. Lord Hoffmann, in delivering the leading judgment, questioned whether the rule about recovering foreseeable losses was an external rule of law or a prima facie assumption about what the parties intended. He emphasised the importance of considering the background of market expectations and concluded that the majority of arbitrators had applied too crude a test of foreseeable loss.
Lord Hoffmann's approach considered whether the parties would reasonably be regarded as assuming responsibility for such losses, taking into account the context, surrounding circumstances, or general understanding in the relevant market. He found that the loss of profits in the next charter was completely unquantifiable and not within the contemplation of the parties. Lord Hope and Lord Rodger concurred with Lord Hoffmann's reasoning, emphasising that a party entering into a contract could only be supposed to contemplate losses that were likely to result from the breach in question.
In summary, The Achilleas case clarified the scope of recoverable damages for late redelivery of a ship, highlighting the need to consider the parties' intentions and market expectations in assessing foreseeability and remoteness of loss. The decision reinforced the fundamental principle that liability for damages should be based on what the parties would reasonably be considered to have undertaken in their particular market.
Transfield Shipping, acting as a charterer, hired the ship The Achilleas from Mercator Shipping. The contract stipulated that Transfield would have the ship for five to seven months and return it by midnight on 2 May 2004. However, Transfield returned the ship late, on 11 May, causing complications in the subsequent chartering contract with Cargill International SA.
Cargill agreed to take the ship, but due to the delay, they negotiated a reduced rate of $31,500 a day instead of the originally agreed-upon $39,500 a day. The central issue in the case was determining the amount Transfield should pay to Mercator for the late return of the ship. Transfield argued for a payment reflecting the difference between the initial contract rate and the market rate prevailing during the delay, amounting to $158,301.17. Mercator, on the other hand, contended that Transfield should compensate for the loss incurred on the new chartering contract, totalling $1,364,584.37.
In the arbitration process, the majority ruled in favour of Mercator, holding that the loss from the reduced price in the next chartering contract fell within the first rule of Hadley v Baxendale [1854]. The arbitrators reasoned that this loss was a foreseeable consequence of the breach and one that Transfield, at the time of making the contract, ought to have realised was not unlikely to result from a delay in redelivery.
The Court of Appeal upheld the arbitrators' decision, emphasising that limiting damages for late redelivery solely to the overrun period measure was undesirable and uncommercial. Rix LJ argued that such a limitation would place owners too much at the mercy of charterers and create an imbalance in their respective positions.
However, the House of Lords unanimously reversed the Court of Appeal's decision, holding that the loss of profits in the next charter was not within the rule in Hadley v Baxendale. Lord Hoffmann, in delivering the leading judgment, questioned whether the rule about recovering foreseeable losses was an external rule of law or a prima facie assumption about what the parties intended. He emphasised the importance of considering the background of market expectations and concluded that the majority of arbitrators had applied too crude a test of foreseeable loss.
Lord Hoffmann's approach considered whether the parties would reasonably be regarded as assuming responsibility for such losses, taking into account the context, surrounding circumstances, or general understanding in the relevant market. He found that the loss of profits in the next charter was completely unquantifiable and not within the contemplation of the parties. Lord Hope and Lord Rodger concurred with Lord Hoffmann's reasoning, emphasising that a party entering into a contract could only be supposed to contemplate losses that were likely to result from the breach in question.
In summary, The Achilleas case clarified the scope of recoverable damages for late redelivery of a ship, highlighting the need to consider the parties' intentions and market expectations in assessing foreseeability and remoteness of loss. The decision reinforced the fundamental principle that liability for damages should be based on what the parties would reasonably be considered to have undertaken in their particular market.
