The subject of damages for late redelivery received judicial attention recently when the English High Court handed down its judgment in two related arbitration appeals.1 The charterers (Hapag-Lloyd in both instances) successfully argued that, because the respective owners had agreed to sell the vessels to third parties on terms preventing them from chartering the vessels out after redelivery, they had suffered no loss.
While this case was decided on its own (relatively unusual) facts, the judgment is an important one and will likely be equally relevant to sale of goods contracts. It also provides a helpful reminder of the orthodox approach to assessing damages for late redelivery, as well as an analysis of the thorny issues surrounding the res inter alios acta principle.
This article sets out a summary of the relevant law surrounding late redelivery and then discusses how this recent judgment fits into that context.
Late redelivery
Charterers’ obligation to redeliver on time
Under a time charterparty, charterers are bound to redeliver the vessel within the agreed charter period. If they fail to do so, and if the market rate during the overrun period is greater than the charter hire rate, they will be liable to the owners for damages.
Illegitimate last orders
If the charterers’ order the vessel to conduct a final voyage that cannot reasonably be completed within the charter period, this is considered an illegitimate order, and it can be rejected by owners. If owners agree (either expressly or tacitly) to perform the voyage, they are still permitted to bring a claim in damages for any late redelivery.
Measure of damages
The usual measure of damages for late redelivery is the difference, during the overrun period, between the charter hire (which charterers are bound to keep paying) and the existing market rate. The market rate is most likely to be taken as the hire rate of a hypothetical charter of a similar length and trade to the original charter.
Owners’ additional losses
It will often be the case that owners have entered into a future charter with a third party that is then lost as a result of the late redelivery, causing the owners loss. This was considered in The Achilleas2, in which the House of Lords reversed the decisions of the tribunal and lower courts which had all found in favour of the owners. It was held that while losses under a follow-on charter were within the reasonable contemplation of charterers as being the not unlikely result of a late redelivery, in order for charterers to be held liable they also needed to have assumed responsibility for the type of loss suffered. In that case, it was found that there was no such assumption of responsibility – charterers had no knowledge of the follow-on fixture, nor could they have quantified the losses. They were, therefore found liable only under the normal measure of damages discussed above.
The Hapag-Lloyd case
The Arbitration
The dispute centred on the late redelivery (by two and seven days respectively) by Hapag-Lloyd of the vessels Skyros and Agios Minas. During the charter periods the market rate had risen sharply, so the respective owners brought claims against charterers - based on the normal measure of damages. However, the owners had previously entered into Memoranda of Agreement (MOAs) with third party buyers, under the terms of which the owners warranted that they would not charter the vessels out after redelivery by Hapag-Lloyd.
Owners’ main arguments focussed on the application of The Achilleas, although they alternatively sought compensation on the grounds of quantum meruit, user damages and negotiating damages, all of which the High Court would later dismiss as “makeweight”. Owners’ position was essentially that, following The Achilleas, the MOAs should be disregarded and the normal measure of damages should be applied, even where, as here, owners had not actually suffered any loss. Tied to that was their reliance on res inter alios acta – i.e. the MOAs were separate unrelated contracts that could not affect owners’ damages claim. This principle, simply put, means matters or transactions involving third parties that are considered irrelevant or inadmissible when assessing damages. As colloquially noted by the Court of Appeal in another case, the phrase can loosely be translated as ‘’none of your business’’.3
The tribunal found that owners were entitled to substantial, as opposed to nominal, damages for charterers’ breaches. Charterers appealed to the High Court.
The High Court
The judge, Mr Justice Bright, overturned the tribunal’s decision and awarded owners only nominal damages. He distinguished the judgment in The Achilleas, deeming that it concerned remoteness rather than res inter alios acta, which opened the doors to a consideration of the MOAs in relation to owners’ claim for damages. In doing so he noted that the findings in The Achilleas did not create a right to recover damages that were otherwise irrecoverable. In addition, he followed the Slater v Hoyle & Smith4 judgment, which found that res inter alios acta did not apply in certain circumstances, and given that the MOAs were onward contracts for the same specific goods as those delivered under the main contract (i.e. the ships), he could take them into account when assessing owners’ damages. As such owners had suffered no loss, as they would not and could not have chartered the ships out after redelivery. The judge emphasised the fundamental principle that damages should put the innocent party into the financial position that they would have occupied had there been no breach.
Further appeal
Owners have appealed the decision, with the Court of Appeal hearing scheduled for 2025. Indeed, Mr Justice Bright had already recommended the case for appeal in his judgment, opining that the parties’ counsel had not focussed enough on the relevant case law.
Conclusion
While the case turned on its specific facts, the judge’s finding that the MOAs could be taken into account when assessing damages was noteworthy. Distinguishing The Achilleas in this regard could prove controversial, and it will be interesting to see whether the Court of Appeal upholds this decision.
But as it stands the judgment may well have an impact on how parties in late delivery of goods cases, in particular, go about proving and quantifying damages. Owners in late redelivery cases will no doubt also now be required by their charterers to prove that they have not entered into any arrangements that might limit their opportunity to profit from the ship post-redelivery, while buyers in late delivery of goods disputes are likely to face a similar evidential burden.
How can Skuld help?
Charterers should always pay special attention to the redelivery provisions in the charterparty. Disputes under the charterparty for late redelivery is covered under our standard FD&D service product, which can be extended from the more traditional cover in relation to a charterparty to also include maritime disputes under sale and purchase contracts.
Should you require any assistance or advice on reviewing the redelivery provisions in your charterparty, your dedicated Skuld team is here to help.
On behalf of your Skuld team of underwriters and claims handlers who serve our charterers and traders 24/7/365.
- Hapag-Lloyd AG v Skyros Maritime Corporation and Hapag-Lloyd AG v Agios Minas Shipping Company [2024] EWHC 3139 (Comm)
- Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48
- ED&F Man Capital Markets Ltd v Come Harvest Holdings Ltd and others [2022] EWCA Civ 1704
- Slater v Hoyle & Smith [1920] 2 KB 11 (CA)